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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
COMMISSION FILE NUMBER: 0-20580
LIFE MEDICAL SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 14-1745197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
379 Thornall Street, Edison, New Jersey 08837
(Address of principal executive offices) (Zip Code)
(732) 494-0444
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(Title of each class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK--PAR VALUE $.001 PER SHARE
UNITS
REDEEMABLE CLASS A WARRANTS
REDEEMABLE CLASS B WARRANTS
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 23, 1998 was approximately $ 14.3 million.
As of March 23, 1998, 7,922,559 shares of Common Stock, $.001 par
value, of the registrant were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement to be filed
pursuant to Regulation 14A in connection with solicitation of proxies for its
Annual Meeting of Stockholders to be held on May 28, 1998 are incorporated by
reference into Part III of this Form 10-K.
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INTRODUCTORY NOTE
Life Medical Sciences, Inc., a Delaware corporation (the "Company"), is a
biomaterials company engaged in the development and commercialization of
innovative and cost-effective medical devices for therapeutic applications.
Certain statements in this Report on Form 10-K (the "Report") under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including,
without limitation, statements regarding future cash requirements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following: delays
in product development; problems or delays with clinical trials; failure to
receive or delays in receiving regulatory approval; lack of enforceability of
patents and proprietary rights; lack of reimbursement; general economic and
business conditions; industry capacity; industry trends; demographic changes;
competition; material costs and availability; the loss of any significant
customers; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; changes in, or
the failure to comply with, government regulations; and other factors referenced
in this Report. When used in the Report, statements that are not statements of
material facts may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "anticipates", "plans", "intends", "expects" and
similar expressions are intended to identify such forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
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PART I
Item 1. Business
General
Life Medical Sciences, Inc. is a biomaterials company engaged in the
development and commercialization of innovative and cost-effective medical
devices for therapeutic applications. During 1997, the Company refocused its
strategy as a biomaterials company developing bioresorbable polymers. The
Company's proposed products are derived from its proprietary polymer technology.
The Company's strategy is to apply its platform technology to the development of
multiple products that address unmet therapeutic needs or offer improved, cost-
effective alternatives to current methods of treatment. Products currently under
development focus on preventing or reducing post-operative surgical adhesions.
The Company has also developed a line of novel silicone gel-filled cushions
intended for the treatment of hypertrophic and keloid scars. The Company's
proposed products are in various stages of clinical trials and preclinical
studies.
The Company's polymer technology is based on a proprietary group of polymers.
The Company believes that these polymers display desirable properties which
enable them to be tailored to a wide variety of applications. These properties
include bioresorbability, flexibility, strength and biocompatibility. Potential
applications for products derived from these polymers are in medical areas such
as the prevention of post-operative surgical adhesions, as well as in consumer
health and hygiene and industrial areas. The Company is currently developing
bioresorbable adhesion barrier films for the prevention or reduction of post-
operative surgical adhesions in gynecological and general surgical procedures
(RepelTM) as well as in cardio-vascular surgery (Repel-CVTM), and bioresorbable
adhesion barrier coatings (viscous solutions) for the prevention or reduction of
post-operative surgical adhesions in gynecological and general surgical
procedures (ResolveTM) and orthopedic surgical procedures (Revisc TM).
The Company was developing three products utilizing its in-situ tissue
culturing technology: CarielTM, primarily for chronic wound healing; PilielTM,
for stimulating hair regrowth and reducing hair loss; and LipoelTM, for
improving the success rate of fat transplantation from a donor site to a
recipient site in the same individual (autologous) for reconstructive or
cosmetic surgery with long-term benefits. The Company's in-situ tissue
culturing technology utilized proprietary, defined, serum-free combinations of
nutrients and hormones which, when applied to the body, promoted cell growth by:
(i) directly supplying essential components required for cell growth; (ii)
stimulating new blood vessel formation (angiogenesis); and (iii) increasing the
flow of blood through existing vessels (vasodilation). During 1997, the Company
terminated all clinical development efforts on these products since they did not
yield the desired benefits to the intended user during clinical evaluation.
The Company has begun marketing its Clinicel TM product line of uniquely
designed silicone gel-filled cushions for the healing of problem scars which are
applied to intact skin for diminishing the size, discoloration and associated
discomfort of unsightly scars. The Company has launched a direct-to-consumer
marketing campaign in the United States and is marketing the products
internationally through a series of independent distributors.
The Company's product development strategy is to maintain a relatively small
core of scientists and researchers within the Company. The Company currently
conducts substantially all of its research and product development through
arrangements with specialized academic and industrial organizations which
broaden the development capabilities of the Company. The Company has established
contract manufacturing arrangements for each of its product lines. The Company
will retain the marketing and distribution rights within the United States, but
will seek joint venture, licensing or collaborative arrangements elsewhere.
The Company previously developed and marketed the Sure-Closure SystemTM, a
disposable wound closure device. As a result of a strategic decision to focus on
the development and commercialization of its proposed products utilizing its
platform technologies, the Company, in July 1994, sold the Sure-Closure System
to MedChem Products, Inc. ("MedChem") which was subsequently acquired by C.R.
Bard, Inc. ("C.R. Bard"). In October 1996, Zimmer, Inc., a subsidiary of
Bristol - Myers Squibb ("Zimmer"), acquired the Sure - Closure System from C.R.
Bard. The Company receives a 10% royalty on all net sales of the Sure-Closure
System products through June 30, 2004.
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PROPOSED PRODUCTS AND STATUS OF TESTING
<TABLE>
<CAPTION>
Product Platform Technology Potential Therapeutic Application Status
<S> <C> <C> <C>
Repel Polymer technology Preventing or reducing post- Completed Pilot clinical trials in
operative surgical adhesions in U.S.
gynecological surgery (barrier film).
Repel - CV Polymer technology Preventing or reducing post-operative IDE approval
surgical adhesions in cardio-vascular
surgeries (barrier film).
Resolve Polymer technology Preventing or reducing post-operative Completed Preclinical trials
surgical adhesion in gynecological and
general surgeries (viscous
formulation).
Revisc Polymer technology Preventing or reducing post-operative Preclinical trials
surgical adhesions in orthopedic
surgeries (viscous formulation).
Clinicel Silicone Diminishing unsightly scars and Marketed
associated discomfort.
</TABLE>
PROPRIETARY PLATFORM TECHNOLOGIES
Polymer Technology
The Company's polymer technology is based on a proprietary group of polymers.
The Company believes that these polymers display desirable properties which
enable them to be tailored to a wide variety of applications. These properties
include bioresorbability, flexibility, strength, and biocompatibility. Unlike
many other polymer systems which may cause untoward responses, polymers derived
from the Company's polymer technology are highly biocompatible and have not
caused any undesirable tissue responses thus far. Medical applications include
the prevention or reduction of post-operative surgical adhesions. In addition,
potential medical implantable uses include resorbable sutures and drug delivery
systems.
Utilizing its polymer technology, the Company is currently developing Repel, a
bioresorbable barrier film, for the prevention or reduction of post-operative
surgical adhesions in gynecological and general surgical procedures, Repel-CV, a
bioresorbable barrier film, for the prevention or reduction of post-operative
surgical adhesions in cardio-vascular surgical procedures, Resolve, a
bioresorbable barrier coating (viscous solution), for the prevention or
reduction of post-operative surgical adhesions in ob/gyn and general surgical
procedures and Revisc, a bioresorbable barrier coating (viscous solution), for
the prevention or reduction of post-operative surgical adhesives in orthopedic
surgical procedures. See "Collaborative Agreements - Polymer Technology."
In-Situ Tissue Culturing Technology
During 1997, the Company terminated its European multi-center clinical trials
for Cariel, its proposed product primarily for chronic would healing, and
Piliel, its proposed product for stimulating hair regrowth and reducing hair
loss. Additionally, the Company has suspended clinical development of Lipoel,
its proposed product for improving the success of autologous fat
transplantation. This was done to refocus the Company's resources on its more
promising polymer technologies. See "Collaborative Agreements - In-Situ Tissue
Culturing Technology."
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Products
Repel--Bioresorbable Adhesion Barrier Film
Repel-CV-- Bioresorbable Adhesion Barrier Film
Resolve--Bioresorbable Adhesion Barrier Coating
Revisc--Bioresorbable Adhesion Barrier Coating
Repel and Repel-CV are proprietary bioresorbable post-operative adhesion
barrier films based on the Company's polymer technology. The Company is also
developing Resolve and Revisc, post-operative adhesion barrier coatings (viscous
solution). Repel, Repel-CV, Resolve and Revisc are intended to be used
routinely during surgeries to prevent or reduce the formation of post-operative
adhesions.
Adhesions are fibrous structures that connect tissues or organ surfaces that
are not normally joined. They are an undesirable side effect of the body's
normal healing process following damage to tissue. Adhesions can cause
significant complications such as bowel obstruction following abdominal surgery,
infertility following gynecological surgery, serious complications during
secondary cardiovascular surgical procedures, restricted limb motion following
orthopedic surgery, and pain following any surgery. Moreover, adhesions that
form as a result of surgery can increase the complexity, duration and risk of
subsequent surgery. According to industry sources, in the United States,
surgeons perform an estimated 440,000 abdominal operations annually to remove
adhesions, and the annual cost in the United States for the removal of such
adhesions is approximately $1.2 billion in inpatient treatment charges.
According to industry data, adhesions occur in approximately 93% of abdominal
surgeries, between 55% and 100% of gynecologic operations and are a common
occurrence following open-heart procedures. However, as it is not possible to
predict which patients will develop adhesion related complications, the Company
believes that most surgeries will benefit from routine use of Repel, Repel-CV,
Resolve or Revisc. The Company is currently developing these products for
applications in abdominal and gynecological (Repel and Resolve), orthopedic
(Revisc) and cardiac (Repel-CV) surgeries. There are at least 4.5 million
cardiac, gynecological, general and orthopedic surgeries performed in the United
States each year.
The Company believes that current products for the prevention or reduction of
adhesions are limited by various shortcomings including: (i) undesirable
handling characteristics in the surgical environment, (ii) diminished efficacy
in the presence of blood, (iii) inability to be used in laproscopic procedures,
and (iv) failure to be absorbed. The Company believes that Repel, Repel-CV,
Resolve and Revisc may not suffer from these shortcomings and as a result may
become the preferred method of treatment for the prevention or reduction of
adhesions. In addition, some resorbable polymers may form particles or break-
down products as they degrade which could lead to untoward biological effects or
may actually cause adhesions. The Company believes that Repel, Repel-CV, Resolve
and Revisc uniformly dissolve without forming particles and do not form break-
down products, which could lead to untoward biological effects.
The Company has conducted numerous randomized, controlled, preclinical studies
of Repel, Repel-CV, Resolve and Revisc in the United States. The studies were
designed to determine the incidence, extent and severity of abdominal,
pericardial and tendon adhesions in animals following surgery without an
adhesion barrier compared to their formation in animals following surgery and
treatment with Repel, Repel-CV, Resolve and Revisc. Completed studies have shown
that Repel, Repel-CV and Resolve eliminate or significantly reduce adhesions
following surgery in animal models. Preclinical studies on Revisc have recently
been initiated. These preclinical studies are preliminary and there can be no
assurances that subsequent clinical trials will be successful or that Repel,
Repel-CV, Resolve or Revisc will be commercialized.
During 1997, the Company performed a pilot clinical trial for Repel in
gynecological surgeries, at several sites in the United States. The trial was
designed to test the safety and efficacy of Repel when applied to the anterior
and posterior surfaces of the uterus following surgery. The trial results
confirmed that Repel was safe, well tolerated and efficacious. During 1998, the
Company intends to initiate a pivotal clinical trial in the United States and
Europe on Repel as well as pilot clinical trials in the United States and Europe
for Repel-CV. In early 1999, the Company anticipates initiating a pilot
clinical trial in the United States on Resolve in gynecological surgery. See
"Collaborative Agreements - Polymer Technology."
<PAGE>
Clinicel--Topical Scar Resolution Device
The Company received clearance from the United States Food and Drug
Administration ("FDA") to market Clinicel, an externally worn silicone-based
product to be applied to intact skin for diminishing unsightly scars and
associated discomfort. Based on observations by clinical investigators, the
Company believes that when placed on a scar, Clinicel may diminish the size of
the scar, fade discoloration of the scar for better cosmetic results, as well as
alleviate the itching and discomfort associated with the scar. The Company has
recently launched the Clinicel product line through a direct-to-consumer
marketing campaign in the United States and internationally through a select
series of independent distributors. The initial product line consists of a
convenient range of silicone gel-filled cushions, sized to address most types of
scars. See "Collaborative Agreements - Clinicel. "
The Sure-Closure System
The Sure-Closure System is a disposable, single patient use medical device for
wound closure which mechanically causes skin to stretch by harnessing the skin's
natural viscoelastic properties. The principal application for the Sure-Closure
System is for acute wounds involving a loss of skin due to surgery or traumatic
injury. Specifically, the product targets those cases in which the wound is too
wide for conventional suturing or stapling and the surrounding skin is otherwise
viable and capable of being mechanically stretched.
The Company commercialized the Sure-Closure System and introduced its first
product, Sure-Closure I, to the United States market in September 1993. As a
result of a strategic decision to focus on the development and commercialization
of its proposed products utilizing its platform technologies, in July 1994 the
Company sold the Sure-Closure System to MedChem. As part of this agreement, the
Company receives a 10% royalty on net sales through June 2004. MedChem was
subsequently acquired by C.R. Bard in 1995. The Sure-Closure System is currently
marketed by Zimmer, following their acquisition of the Sure-Closure System from
C.R. Bard in October 1996. See "Collaborative Agreements - Sure-Closure
System."
Collaborative Agreements
Polymer Technology
The Company's polymer technology was developed at the Hebrew University of
Jerusalem. The Company entered into an agreement with Yissum Research
Development Company of the Hebrew University of Jerusalem ("Yissum") dated June
14, 1991, as amended in February 1994, as of January 1996 and as of October 1996
(the "Yissum Agreement"), pursuant to which the Company agreed to finance
research and development conducted at the Hebrew University of Jerusalem in the
field of biomedical polymers. Pursuant to the Yissum Agreement, Yissum has
assigned to the Company its worldwide rights to patents, patent applications and
know-how to develop, manufacture and market products relating to this
technology. Under the terms of the Yissum Agreement, all rights in the research
or products developed are owned solely by the Company, except as set forth
below. The Company is permitted to grant licenses of its polymer technology upon
certain terms and conditions. The Company has agreed to favorably consider
manufacturing in Israel products resulting from its polymer technology and to
explore opportunities to do so.
In consideration for the assignment of the patents and the patent
applications, the granting of the licensing rights and the know-how, the
research that Yissum agreed to procure pursuant to the Yissum Agreement and
Yissum's performance of its obligations thereunder, the Company paid Yissum a
fixed fee of $750,000 and is obligated to pay a royalty of five percent of all
net sales of the Company's products under the Yissum Agreement up to a maximum
amount of $5,500,000 in royalties during the term of the Yissum Agreement.
The Yissum Agreement continues until the earlier of the last date upon which
the patents covering the products governed by the Yissum Agreement expire or the
end of a period of 15 years from the date of the first commercial sale of
products under the assigned technology. Yissum has the right in its sole
discretion, subject to certain exceptions set
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forth in the following sentences, to terminate the Yissum Agreement and/or enter
into contracts with others in order to grant them a license for the development,
manufacture and marketing of a product and the other rights detailed in the
Yissum Agreement if, among other things, (i) the Company does not advise Yissum
of the completion of development and manufacturing work necessary to lead to the
development of a product by December 31, 2001; (ii) the Company does not advise
Yissum of the first commercial sale by December 31, 2001; (iii) the Company does
not reach total net sales of products or achieve income of $1,000,000 by
December 31, 2002; (iv) the Company stops manufacturing and/or marketing the
product for a period of more than 12 months; or (v) the Company breaches the
Yissum Agreement, a receiver or liquidator is appointed for the Company or the
Company passes a resolution for voluntary winding up, or a winding up
application is made against the Company, an attachment is made over a
substantial part of the Company's assets, or execution proceedings are taken
against the Company, and the same is not remedied or set aside within the time
periods specified in the Yissum Agreement. Notwithstanding the foregoing: (i) in
the event that the Company does not advise Yissum of the first commercial sale
by December 31, 2001, Yissum shall not terminate the Yissum Agreement during the
year ended December 31, 2002 so long as the Company pays to Yissum a minimum
royalty payment of $50,000; (ii) in the event that the Company does not (a)
advise Yissum of the first commercial sale by December 31, 2002 or (b) reach
total net sales of products or achieve income of $1,000,000 by December 31,
2002, Yissum shall not terminate the Yissum Agreement during the year ended
December 31, 2003 so long as the Company pays to Yissum a minimum royalty
payment of $50,000; and (iii) in the event that the Company does not reach total
net sales of products or achieve income of $1,000,000 by December 31, 2003,
Yissum shall not terminate the Yissum Agreement during the year ended December
31, 2004 so long as the Company pays to Yissum a minimum royalty payment of
$50,000. The Company has agreed to indemnify Yissum under certain circumstances.
Upon the termination of the Yissum Agreement for any reason, the patents and
patent applications assigned by Yissum to the Company will revert in full to
Yissum.
In March 1996, pursuant to the Yissum Agreement, the Company paid Yissum
$60,000 for conducting research relating to the development of surgical adhesion
barriers. Effective as of October 1996 the Yissum Agreement was amended as it
relates to the Company financing research at Yissum. The amendment provides a
research term of five years from the date of the amendment and requires Yissum
personnel to enter into confidentiality and non-competition agreements with the
Company. Pursuant to the amendment, the Company paid Yissum approximately
$276,000 for the first twelve month period and expects to pay Yissum
approximately $270,000 for the second twelve month period of the research term.
Clinicel
The Clinicel product line was developed at The Bruce Rappaport Faculty of
Medicine at Technion-Israel Institute of Technology in Haifa, Israel (the
"Rappaport Faculty"). In July 1995, the Company entered into an agreement with
Dimotech Ltd. (the "Dimotech Agreement") pursuant to which the Company agreed to
finance the research and development conducted by Dimotech Ltd. ("Dimotech")with
regard to Clinicel. Pursuant to the Dimotech Agreement, Dimotech has assigned to
the Company the worldwide rights to its patent applications, any patents which
may issue and know-how to develop, manufacture and market products relating to
Clinicel. Under the terms of the Dimotech Agreement, all rights in the research
or products developed are owned solely by the Company, except as set forth
below. The Company has agreed to favorably consider manufacturing in Israel the
scar care products and to explore opportunities to do so.
In consideration for the assignment of the rights to the patents, patent
applications and know-how and in order to perform and finance the research and
development to be conducted under the Dimotech Agreement, the Company has paid
Dimotech an aggregate fixed fee of $25,935 and is obligated to pay a royalty of
five percent of all net sales of Clinicel products during the term of the
Dimotech Agreement.
The Dimotech Agreement continues until the earlier of the last date upon which
the patents covering the products governed by the Dimotech Agreement expire, or
the end of a period of 15 years from the date of the first commercial sale
pursuant to the assignment. Dimotech has the right in its sole discretion to
terminate the Dimotech Agreement and/or enter into contracts with others in
order to grant them a license for the development, manufacture and marketing of
a product and other rights detailed in the Dimotech Agreement, if, among other
things, (i) the Company does not advise Dimotech of the first commercial sale by
July 16, 1999; (ii) the Company does not reach total net sales of products or
achieve income of $1,000,000 within 72 months from the date of the Dimotech
Agreement (July 2001); (iii) the Company stops manufacturing and/or marketing
the product for a period of more than 12 months; or (iv) the
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Company breaches the Dimotech Agreement, a receiver or liquidator is
appointed for the Company, the Company passes a resolution for voluntary winding
up, a winding up application is made against the Company, an attachment is made
over all or a substantial part of the Company's assets, or execution proceedings
are taken against the Company, and the same is not remedied or set aside within
the time periods specified in the Dimotech Agreement. The Company has agreed to
indemnify Dimotech under certain circumstances. Upon the termination of the
Dimotech Agreement in accordance with the provisions thereof for any reason, the
patents, patent applications and know-how assigned by Dimotech to the Company
will revert in full to Dimotech and any licenses granted by the Company
thereunder will expire.
In-Situ Tissue Culturing Technology
The in-situ tissue culturing technology was developed at the Rappaport
Faculty. In June 1991, the Company entered into an agreement with Technion
Research and Development Foundation, Ltd. (the "Technion") which was assigned to
its wholly-owned subsidiary, Dimotech, and was amended in February 1994 and
February 1996 (the "in-situ tissue culturing technology Agreement"). Pursuant to
the in-situ tissue culturing technology Agreement, the Company agreed to finance
the research and development conducted with regard to the in-situ tissue
culturing technology. Pursuant to the in-situ tissue culturing technology
Agreement, Technion has assigned to the Company the worldwide rights to its
patent applications, any patents which may issue and know-how to develop,
manufacture and market products relating to this technology. Under the terms of
the in-situ tissue culturing technology Agreement, all rights in the research or
products developed are owned solely by the Company, except as set forth below.
The Company has agreed to favorably consider manufacturing in Israel products
resulting from its in-situ tissue culturing technology and to explore
opportunities to do so.
In consideration for the assignment of the rights to the patents, patent
applications and know-how and in order to perform and finance the research to be
conducted under the in-situ tissue culturing technology Agreement, the Company
has paid Dimotech an aggregate fixed fee of $156,500 and is obligated to pay a
royalty of five percent of all net sales of the Company's in-situ tissue
culturing technology products up to a maximum amount of $5,500,000 in royalties
during the term of the in-situ tissue culturing technology Agreement.
The in-situ tissue culturing technology Agreement continues until the earlier
of the last date upon which the patents covering the products governed by the
in-situ tissue culturing technology Agreement expire or the end of a period of
15 years from the date of the first commercial sale of products under the
assigned technology. Dimotech has the right in its sole discretion to terminate
the in-situ tissue culturing technology Agreement and/or enter into contracts
with others in order to grant them a license for the development, manufacture
and marketing of a product and other rights detailed in the in-situ tissue
culturing technology Agreement, if, among other things, (i) the Company does not
advise Dimotech of the completion of product development by June 15, 1999; (ii)
the Company does not advise Dimotech of the first commercial sale by June 15,
1999; (iii) the Company does not reach total net sales of products or achieve
income of $1,000,000 by June 15, 2001; (iv) the Company stops manufacturing
and/or marketing the product for a period of more than 12 months; or (v) the
Company breaches the in-situ tissue culturing technology Agreement, a receiver
or liquidator is appointed for the Company, the Company passes a resolution for
voluntary winding up, a winding up application is made against the Company, an
attachment is made over a substantial part of the Company's assets, or execution
proceedings are taken against the Company, and the same is not remedied or set
aside within the time periods specified in the in-situ tissue culturing
technology Agreement. The Company has agreed to indemnify Dimotech under certain
circumstances. Upon the termination of the in-situ tissue culturing technology
Agreement in accordance with the provisions thereof for any reason, the patents,
patent applications, license and know-how assigned by Dimotech to the Company
will revert in full to Dimotech.
Sure-Closure System
The Sure-Closure System was invented at the Rambam Medical Center, an
affiliate of Technion-Israel Institute of Technology in Haifa, Israel. The
Company entered into an agreement with Technion dated June 28, 1992 (the "Skin-
Stretching Agreement"), pursuant to which Technion has assigned to the Company
its worldwide rights to its patents, patent applications and know-how to
develop, manufacture and market products relating to the Sure-Closure System
technology, and Technion assigned the Skin-Stretching Agreement to Dimotech. On
July 29, 1994, the Company completed the sale of its Sure-Closure System to
MedChem. The assets sold included substantially all of the Company's
<PAGE>
assets, properties, claims, rights and interests related to the Sure-Closure
System, other than accounts receivable. The transaction provided for (i) the
payment to the Company of $4 million; (ii) the assumption of certain
liabilities, in an amount of approximately $644,000 which was recorded as
deferred royalty income and will be deducted from royalty income beginning in
1996; and (iii) a 10% royalty on net sales of all current and future Sure-
Closure System products to be paid to the Company through June 30, 2004. In July
1994, in connection with the sale of the Sure-Closure System, Technion and
Dimotech agreed to the assignment of all rights and duties, under the Skin
Stretching Agreement, to MedChem, relieving the Company of any obligations under
the Skin Stretching Agreement.
In March 1994, the Company entered into an agreement with Technion and
Dimotech, which amended the Skin-Stretching Agreement by providing certain
conditions for release of the Company, by the Chief Scientist of the State of
Israel, from the Company's obligation under the Skin-Stretching Agreement to
manufacture skin stretching products in Israel. Pursuant to this agreement, the
Chief Scientist agreed to permit manufacturing abroad subject to the following
conditions: (i) the office of the Chief Scientist would receive a royalty of two
percent (2%) of net sales of the Sure-Closure System in an aggregate amount not
to exceed $120,000 in royalties; (ii) if more than 450,000 Sure-Closure Systems
were sold in any year, the amount above 450,000 Sure-Closure Systems per year
would be manufactured in Israel; and (iii) the Company would invest $50,000 per
year, for the five-year period commencing on January 1, 1995, in research and
development programs in Israel chosen by the Company. In connection with the
sale of the Sure-Closure System to MedChem, MedChem agreed to assume the
Company's obligations. The Company has invested an amount greater than $50,000
in research and development in Israel in each of 1995, 1996 and 1997, sales of
the Sure-Closure System have not exceeded 450,000 Sure-Closure Systems and the
Company has been informed that the 2% royalty on the sales of the Sure-Closure
Systems has been paid to the Chief Scientist.
Government Regulation
FDA and Other Regulations
The Company's research and development activities and the production and
marketing of the Company's products are subject to regulation for safety,
efficacy and compliance with a wide range of regulatory requirements by numerous
governmental authorities in the United States and other countries. In the United
States, drugs, biologic products and medical devices are subject to rigorous FDA
review. The Federal Food, Drug, and Cosmetic Act, the Public Health Service Act
and other federal statutes and regulations govern or influence the research,
testing, manufacture, safety, labeling, storage, record keeping, approval,
distribution, reporting, advertising and promotion of such products.
Noncompliance with applicable requirements can result in fines, recall,
injunction or seizure of products, refusal to permit products to be imported
into the United States, refusal of the government to approve or clear product
approval applications or to allow the Company to enter into government supply
contracts, withdrawal of previously approved applications and criminal
prosecution. The FDA may also assess civil penalties for violations of the Food,
Drug, and Cosmetic Act relating to medical devices.
In order to obtain FDA approval of a new drug, a biologic or device, companies
must submit proof of safety and efficacy. In most cases such proof entails
extensive clinical and preclinical laboratory tests. The testing and preparation
of necessary applications and processing of those applications by the FDA is
expensive and may take several years to complete. There is no assurance that the
FDA will act favorably or in a timely manner in reviewing submitted
applications, and the Company may encounter significant difficulties or costs in
its efforts to obtain FDA approvals which could delay or preclude the Company
from marketing any product it may develop. The FDA may also require
postmarketing testing and surveillance of approved products, or place other
conditions on the approvals. These requirements could cause it to be more
difficult or expensive to sell the products, and could therefore restrict the
commercial applications of such products. Product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. For patented products or technologies, delays
imposed by the governmental approval process may materially reduce the period
during which the Company will have the exclusive right to exploit such
technologies. See "Risk Factors - Risks Associated with Uncertainties of
Clinical Trials."
The conduct of non-clinical studies must be done in conformity with the FDA's
good laboratory practice regulations. Clinical studies must comply with
the FDA's regulations for institutional review board approval and for
<PAGE>
informed consent and, depending on the product, Investigational New Drug ("IND")
or Investigational Device Exemption regulations. In addition, a variety of state
and local permits are required under regulations relating to the Company's
proposed laboratory activity.
The Company will also be required to register as a manufacturer with the FDA
if it manufactures drugs, biologics or devices in the United States. As such,
the Company would be inspected on a routine basis by the FDA for compliance
with the FDA's good manufacturing practices ("GMP") regulations. These
regulations require that the Company manufacture its products and maintain its
documents in a prescribed manner with respect to manufacturing, testing and
control activities. Foreign manufacturing facilities that produce products for
sale in the United States are also subject to these GMP requirements and to
periodic FDA inspections. FDA regulations also require that the Company provide
information to the FDA on deaths or serious injuries associated with the use of
its products, as well as other post-approval marketing experiences. In addition,
the FDA prohibits a company from marketing approved products for unapproved
applications.
Products utilizing the Company's polymer technology are likely to be
classified as Class III devices, requiring a PreMarket Approval ("PMA")
application review process prior to commercial distribution in the United
States.
Devices
The FDA categorizes devices into three regulatory classifications subject to
varying degrees of regulatory control. In general, Class I devices require
compliance with labeling and record keeping regulations, GMPs, 510(k) pre-market
notification, and are subject to other general controls. Class II devices may be
subject to additional regulatory controls, including performance standards and
other special controls, such as guidelines and postmarket surveillance. Class
III devices, which are typically invasive or life-sustaining products, or new
products never before marketed, require clinical testing to assure safety and
effectiveness and FDA approval prior to marketing and distribution. The FDA also
has the authority to require clinical testing of Class I and Class II devices.
If a medical device manufacturer can establish that a newly developed device
is "substantially equivalent" to a Class I or Class II device that was legally
marketed prior to May 1976, the date on which the Medical Device Amendments of
1976 were enacted, or to a device that was legally introduced to the market
after the FDA has found it to be substantially equivalent to a legally marketed
device, the manufacturer may seek clearance from the FDA to market the device by
filing a 510(k) pre-market notification. Substantial equivalence also can be
found for pre-1976 Class III devices for which PMAs have not been required. The
510(k) pre-market notification may need to be supported by appropriate data
establishing the claim of substantial equivalence to the satisfaction of the
FDA. Following submission of the 510(k) pre-market notification, the
manufacturer or distributor may not place the device into commercial
distribution until an order is issued by the FDA. By regulation, the FDA has no
specific time limit by which it must respond to a 510(k) pre-market
notification. At this time, the FDA responds to the submission of a 510(k) pre-
market notification in approximately 150 days on average. The FDA order may
declare that the device is substantially equivalent to another legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA may, however, determine that the proposed device is not substantially
equivalent, or require further information, such as additional test data, before
the FDA is able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the Company's
market introduction of its products and could have a material adverse effect on
the Company.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent, whether or not the FDA has made a
determination in response to a 510(k) premarket notification, the manufacturer
or distributor must seek pre-market approval of the proposed device through the
submission of a PMA application. A PMA application must be supported by
extensive data, including preclinical and human clinical trial data, as well as
extensive literature, to prove the safety and efficacy of the device. Upon
receipt, the FDA conducts a preliminary review of the PMA application. If
sufficiently complete, the submission is declared fileable by the FDA. By law,
the FDA has 180 days to review a PMA application once it is filed, although PMA
application reviews more often occur over a significantly protracted time
period, and generally take approximately two years or more from the date of
filing to complete. A number of devices for which FDA marketing clearance has
been sought have never been cleared for marketing.
<PAGE>
If human clinical trials of a proposed device are required and the device
presents "significant risk," the manufacturer or distributor of the device will
have to file an IDE application with the FDA prior to commencing human clinical
trials. The IDE application must be supported by data, typically including the
results of animal testing. If the IDE application is approved, human clinical
trials may begin at a specified number of investigational sites with the number
of patients approved by the FDA.
Sales of devices, new drugs and biologic products outside the United States
are subject to foreign regulatory requirements that vary widely from country to
country. Whether or not FDA approval has been obtained, approval of a device,
new drug or biologic product by a comparable regulatory authority of a foreign
country must generally be obtained prior to the commencement of marketing in
those countries. The time required to obtain such approval may be longer or
shorter than that required for FDA approval.
Third Party Reimbursement
Successful commercialization of the Company's proposed products may depend in
part on the availability of adequate reimbursement from third-party health care
payers such as Medicare, Medicaid, and private insurance plans. Reimbursement
matters include both coverage issues and payment issues. Questions of coverage
raise the issue of whether a product will be paid for at all and under what
circumstances. Questions of payment relate to the amount or level of payment.
Reimbursement policies vary among payers and may depend on the setting in which
a product is used.
There are numerous governmental third-party payers. Medicare is a federally
funded health insurance for persons who are age 65 or older, who have end stage
renal disease, or who otherwise qualify by virtue of a disability. Medicare is
the largest single health insurance program in the United States. Medicaid is a
joint federal-state program to provide health services to the indigent. The
Department of Veterans Affairs provides a variety of medical services to
veterans both directly and through arrangements with private health care
providers. The Civilian Health and Medical Program for the Uniformed Services
pays for care and services furnished to dependents of members of the armed
forces. There are also numerous private health insurance plans, including
private nonprofit insurers (e.g., Blue Cross and Blue Shield plans), commercial
insurers, and various types of managed care organizations.
Significant uncertainty may exist as to the coverage and reimbursement status
of newly approved health care products. There can be no assurance that adequate
third-party reimbursement will be available for the Company to establish and
maintain price levels sufficient for realization of an appropriate return on its
investment in developing new therapies. Government and other third-party payers
are increasingly attempting to contain health care costs by limiting both
coverage and payment levels for new therapeutic products approved for marketing
by the FDA and by refusing, in many cases, to provide any coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and payment levels are not provided by
government and third-party payers for the Company's proposed products, the
market acceptance of these products would be adversely affected. Failure of the
Company's proposed products to be adequately reimbursed by third-party payers
could have a material adverse effect on the Company's business and financial
condition.
Coverage
As a general matter, third party payers are increasing their level of scrutiny
of new medical technologies with respect to whether such technologies should be
covered. As part of this process, third-party payers are increasingly evaluating
the improvement in health outcomes, price, and cost-effectiveness of medical
products. There can be no assurance that any product developed by the Company
will be considered clinically effective or cost-effective or that the Company's
products will be covered by third-party payers.
Payment
Likewise, third-party payers are increasing their level of scrutiny with
respect to the level of payment for new medical technologies, and there can be
no assurance that the level of payment for the Company's proposed products,
<PAGE>
even if they are covered, will be adequate to enable the Company to realize an
appropriate return on its investment in developing new therapies.
In the private third-party payer context, limitations on payments to providers
and for pharmaceutical products are also increasing, particularly with the
rising prominence of managed care organizations. In both domestic and foreign
markets, the ability of the Company to commercialize its proposed products could
be significantly affected by the availability and amount of reimbursement from
government payers, private insurers, and other organizations.
Anti-Kickback and Fraud and Abuse Laws
Several types of state and federal laws have been applied to restrict certain
marketing practices in the pharmaceutical industry in recent years. These
include anti-kickback statutes and consumer protection laws prohibiting unfair
or deceptive trade practices.
The federal Medicare/Medicaid anti-kickback statute prohibits persons from
knowingly and willfully offering, paying, soliciting, or receiving remuneration
to induce or in return for purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing or ordering any service or item payable under
Medicare, Medicaid, or certain other federally funded health care programs.
These provisions have been broadly interpreted to apply to certain relationships
between manufacturers, prescribers, purchasers of manufacturers' products, and
parties, such as pharmacies, in a position to refer or recommend purchases.
Under current law, federal courts and the Office of Inspector General ("OIG") of
the United States Department of Health and Human Services have stated that the
statute may be violated if Aone purpose" (as opposed to a primary or sole
purpose) of remuneration is to induce prohibited purchases, recommendations, or
referrals. In August of 1994, the OIG issued a "Special Fraud Alert" describing
pharmaceutical manufacturer promotional activities that may violate the statute.
Further, the government has taken several significant enforcement actions under
the statute against pharmaceutical manufacturers.
There are six statutory exceptions to the basic prohibition against kickbacks.
Such protected practices include properly disclosed discounts or other
reductions in price, payments to bona fide employees, payments to group
purchasing organizations, waiver of coinsurance for Medicare Part B services for
certain individuals who qualify for certain Public Health Service programs,
remuneration under certain risk-sharing arrangements, and payment practices set
forth in regulations defining conduct that will not be subject to enforcement
(i.e., the "safe harbors"). The OIG's safe harbor regulations contain further
refinements of the statutory exceptions, and also contain safe harbors for,
among other things, warranties, personal services contracts, and reductions in
prices to health plans by contract health care providers. Although failure to
satisfy all of the criteria for a particular safe harbor does not necessarily
mean that an arrangement is unlawful, practices that involve remuneration
intended to induce prohibited purchases or recommendations may be subject to
scrutiny if they do not qualify for the safe harbor. The Company's practices may
not in all cases meet all of the criteria for safe harbor protection from anti-
kickback liability.
The majority of states also have statutes or regulations similar to the
federal Medicare/Medicaid anti-kickback statute. In several states, these laws
apply regardless of whether payment for the services in question may be made
under Medicaid or state health programs. Sanctions under these federal and state
laws may include civil money penalties, license suspension or revocation,
exclusion of providers or practitioners (but, under current regulations, not
manufacturers) from participation in state health care programs, and criminal
fines or imprisonment.
A number of states also have recently sought to regulate pharmaceutical
promotion, and particularly manufacturer-sponsored incentives to promote the
utilization of their products, through state consumer protection statutes. These
laws generally prohibit unfair, deceptive, and misleading trade practices. In
general, the states have challenged programs under which a pharmacy receives a
financial incentive to dispense a particular product but does not disclose that
incentive to the patient.
Because of the breadth of these statutes, it is possible that some of the
Company's business activities could be subject to challenge under one or more of
such laws. Such a challenge could have a material adverse effect on the
Company's business and financial condition.
<PAGE>
Patents and Proprietary Rights
In connection with the polymer technology, the Company currently holds two
issued United States patents, one Canadian patent and two Israeli patents
relating to bioresorbable polymeric compounds and polyurethane polymeric
compounds. The first United States patent claims novel bioresorbable polymeric
compounds of specified chemical structure. Also claimed are medical articles,
including sutures and prosthetic devices, made from these materials as well as
methods for making these materials. The Company does not currently have
comparable patent protection outside the United States for the bioresorbable
polymeric compounds other than in Canada and in Israel. The second United States
patent claims novel polyurethane polymeric compounds of specified chemical
structure. Also claimed are medical articles, including sutures and wound and
burn dressings. The two United States patents will remain in effect until June
2, 2008 and May 3, 2010, respectively, provided that all requisite maintenance
fees are paid to the United States Patent and Trademark Office. The Company has
one issued and one pending patent application in the United States pertaining to
bioresorbable polymeric compounds used in adhesion prevention which will remain
in effect until January 8, 2015, provided that all requisite maintenance fees
are paid to the United States Patent and Trademark Office. The Company has
filed for foreign protection on the bioresorbable polymeric compounds used in
adhesion prevention.
In connection with Cariel, the Company has two issued patents in the United
States. These patents are directed to the Cariel composition(s) and its use in
treating wounds. In January 1997, the United States Patent and Trademark Office
issued a second patent providing broader composition of matter and use coverage.
The Company has several international patent applications in the following
countries: Canada, Japan, South Korea, Australia and the EPO (designating the
member states of the EPO including Austria, Belgium, Denmark, France, Germany,
Great Britain, Greece, Italy, Liechtenstein, Luxembourg, Netherlands, Spain,
Sweden and Switzerland).
In connection with Piliel, the Company has filed two United States patent
applications related to novel hair and nail growth compositions, methods for
enhancing the growth of hair and nails and revitalizing skin. In addition, one
of these patent applications is directed to methods for restoring the natural
color of hair (follicular melanogenesis). The Company has filed for patent
protection in Canada, Europe and Israel on Piliel.
In connection with Lipoel, the Company has one issued United States patent
directed to compositions and methods for enhancing fat transplantation for use
in surgical and related cosmetic applications. The Company has filed for patent
protection on Lipoel in Canada, Europe, Australia and Israel.
There can be no assurance that the claims in the pending patent applications
will issue as patents, that any issued patents will provide the Company with
significant competitive advantages, that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company, or,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and prevent infringement of a patent can be
substantial. Furthermore, there can be no assurance that others will not
independently develop similar or superior technologies, duplicate the Company's
technologies or design around the patented aspects of the Company's
technologies. The Company could incur substantial costs in proceedings before
the United States Patent and Trademark Office, including interference
proceedings. The proceedings could also result in adverse decisions as to the
patentability of the Company's licensed or assigned inventions. Further, there
can be no assurance that the Company will not infringe upon prior or future
patents owned by others, that the Company will not need to acquire licenses
under patents belonging to others for technology potentially useful or necessary
to the Company, or that such licenses will be available to the Company, if at
all, on terms acceptable to the Company. Moreover, there can be no assurance
that any patent issued to or licensed by the Company will not be infringed by
others. Lastly, there can be no assurance that third parties will not bring
suits against the Company for patent infringement or for declaratory judgment to
have the patents owned or licensed by the Company declared invalid. The Company
also relies on trade secrets and other unpatented proprietary technology. No
assurance can be given that the Company can meaningfully protect its rights in
such unpatented technology or that others will not independently develop
substantially equivalent products and processes or otherwise gain access to the
Company's technologies. While obtaining patents is deemed important by the
Company, patents are not considered essential to the success of its business.
However, if further patents do not issue from present or future patent
applications, the Company may be subject to greater competition. In some cases,
the Company may rely on trade secrets to protect its innovations. There can be
no assurance that trade secrets will be established, that secrecy
<PAGE>
obligations will be honored, or that others will not independently develop
similar or superior technologies. To the extent that consultants, key employees,
third parties involved in the Company's projects or others independently develop
technological information, disputes may arise as to the proprietary rights to
such information which may not be resolved in favor of the Company.
The Company seeks to protect its trade secrets and proprietary know-how, in
part, through confidentiality agreements with its employees, consultants,
advisors, collaborators and others. There can be no assurance that these
agreements will not be violated by the other parties, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. The Company
has relationships with a number of academic consultants who are employed by
organizations other than the Company. Accordingly, the Company has limited
control over their activities and can expect only limited amounts of their time
to be dedicated to the Company's activities. These persons may have consulting,
employment or advisory arrangements with other entities that may conflict or
compete with their obligations to the Company. Consultants generally sign
agreements that provide for confidentiality of the Company's proprietary
information and results of studies. There can be no assurance, however, that the
Company will, in connection with every relationship, be able to maintain the
confidentiality of the Company's technology, dissemination of which could have a
materially adverse effect on the Company's business. To the extent that the
Company's scientific consultants develop inventions or processes independently
that may be applicable to the Company's proposed products, disputes may arise as
to the ownership of the proprietary rights to such information. Such inventions
or processes will not necessarily become the property of the Company, but may
remain the property of such persons or their full-time employers. The Company
could be required to make payments to the owners of such inventions or
processes, either in the form of cash, equity or a combination thereof. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights.
The Company has filed intent to use applications with the United States Patent
and Trademark Office for the following trademarks: Cariel, Piliel, Lipoel,
Repel, Resolve, Revisc and Clinicel.
Competition
General
The Company is engaged in rapidly evolving and highly competitive fields.
Competition from biotechnology companies, medical device manufacturers,
pharmaceutical and chemical companies and other competitors is intense. Many of
these companies have substantially greater capital resources, research and
development staffs, facilities, and experience in obtaining regulatory approvals
as well as in the manufacturing, marketing, and distribution of products than
the Company. Academic institutions, hospitals, governmental agencies and other
public and private research organizations are also conducting research and
seeking patent protection and may develop competing products or technologies on
their own or through joint ventures. These entities also compete with the
Company in recruiting highly qualified scientific personnel. In addition,
recently developed technologies or technologies that may be developed in the
future are, or may be, the basis for competitive products. The Company's
products or processes may become obsolete before the Company can obtain approval
to market them or before it can recoup related research and development or
commercialization expenses. Competitors may also be more successful than the
Company in production and marketing. The Company's products may also be subject
to competition from related products using techniques other than those developed
by the Company or based on advances that may render the Company's products
obsolete.
The Company believes that its competitive position will be based on its
ability to create and maintain scientifically advanced technology and
proprietary products and processes, obtain required government approvals on a
timely basis, develop and manufacture its proposed products on a cost-effective
basis and successfully market clinically effective products.
<PAGE>
Repel, Repel-CV, Resolve and Revisc
Repel, Repel-CV, Resolve and Revisc are expected to compete with InterceedTM,
a product of Johnson & Johnson, SeprafilmTM , a product of Genzyme Corp., and
GoretexTM, a product of WL Gore. Several other companies including LifeCore
Biomedical Inc., Gliatech Inc., Anika Therapeutics, Inc., Biomatrix Inc.,
Alliance Pharmaceuticals, Corp. and Focal Inc. are thought to be pursuing the
development of products for the prevention of adhesions.
Clinicel
Clinicel is expected to compete with various treatment options currently on
the market, such as silicone sheets, silicone gels and the use of corticosteriod
injections.
MANUFACTURING
The Company believes it currently has contracted for sufficient manufacturing
capabilities to allow for production in quantities sufficient to support its
anticipated needs.
The Company intends to rely primarily on certain manufacturers to produce
Repel, Repel-CV, Resolve, Revisc, Clinicel and other proposed products for
testing and commercial production. The manufacturer procures, tests and inspects
all raw materials used in the production of the Company's proposed products. The
manufacturer relies on various sources, approved by the Company, for its raw
materials and components. The Company believes that alternative sources for
these raw materials and components are available. The Company's products would
be manufactured in a facility in compliance with regulatory requirements. The
Company has engaged a third party to inspect the product formulated by the
manufacturer for quality assurance purposes. The Company has been, and expects
to continue to be, able to obtain all materials required for its production of
its proposed products, although there can be no assurances thereof.
MARKETING AND SALES
The Company will market its Clinicel products through advertisements in
various periodicals and professional journals and establish distribution in
various chain drug stores. Internationally, the Clinicel products will be
marketed through a series of independent distributors. If the Company's proposed
products from its polymer technology are successfully developed, the Company
intends to establish an organization for the marketing and sale of these
proposed products in the United States. The Company intends to seek joint
venture, licensing or collaborative arrangements for the marketing and sale of
these proposed products elsewhere in the world.
If development of the Company's bioresorbable polymer products is completed,
the Company will seek to have its products marketed and sold in European
countries and the United States while concurrently seeking product registration
in Japan. Products utilizing the Company's technologies are expected to be
targeted to various segments in the medical community, including physicians,
surgeons, and other care providers in both the institutional and home care
markets. The Company's future growth and profitability will depend, in large
part, on the success of its personnel and others in fostering acceptance of the
Company's products as an alternative to other available products, among the
medical community. Such acceptance will be substantially dependent on educating
the medical community as to the distinctive characteristics and potential
benefits of the Company's technologies and products. There can be no assurance
that the efforts of the Company or others will be successful or that any of the
Company's technologies or proposed products will receive the necessary
acceptance by the medical community.
The Company may, in the future, decide to change its marketing and
distribution approach. Factors which may influence the Company's decision
include, but are not limited to, market size, competition, capital requirements,
projected return on investment, extent of necessary development and other
barriers to entry which could confront the Company when attempting to penetrate
certain markets.
<PAGE>
PRODUCT LIABILITY AND INSURANCE
The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of medical products. The
Company has obtained product liability insurance for its clinical trials and
commercial sales of its products providing coverage in an aggregate amount of
$2,000,000.
HUMAN RESOURCES
As of March 23 , 1998, the Company employed seven full time employees.
Research and development activities are conducted through arrangements with
various consultants and companies in Europe, Israel and the United States. The
Company's employees are not a party to any collective bargaining agreement. The
Company believes that it has good relations with its employees. The Company
intends to increase its number of full time employees as it expands its clinical
trials and product development activities and begins to market its products.
Consultants and Advisors
The Company utilizes various consultants and advisors for research,
development and testing of its technologies and products. The Company
periodically confers with such consultants and advisors as necessary to discuss
research, development and testing strategies and specific details of certain
projects. Certain of the listed consultants and advisors have entered into
agreements specifying the terms and scope of their individual advisory
relationship with the Company. The Company does not believe that termination of
any individual consulting or advisory agreement would materially affect its
business. None of the consultants or advisors are employed by the Company and,
therefore, may have commitments to, or consulting or advisory contracts with,
other entities which may compete with their obligations to the Company. The
Company's consultants and advisors are as follows:
Adrian Barbul, M.D. Dr. Adrian Barbul is Professor of Surgery, Johns
Hopkins Medical Institutions, and Associate Surgeon-in-
Chief, Sinai Hospital of Baltimore. Dr. Barbul is a
clinical surgeon and also directs the Surgical Research
Laboratories at Sinai Hospital, as a National Institute
of Health-funded investigator. Dr. Barbul's main
research interests are in the area of soft tissue
repair.
Daniel Cohn, Ph.D. Dr. Daniel Cohn is Professor of Biomaterials Science
and Head of the Biomedical Polymers Research Group,
Casali Institute of Applied Chemistry, Hebrew
University, Jerusalem, Israel. Dr. Cohn's main areas of
research are biomedical resorbable polymers, surface
tailoring of polymeric biomaterials, biomedical
composites and the development of polymeric scaffolds
for tissue engineering. Dr. Cohn developed the
Company's polymer technology.
Alan H. DeCherney, M.D. Dr. Alan DeCherney is Professor and Chairman,
Department of Obstetrics and Gynecology at UCLA School
of Medicine. Prior to that, Dr. DeCherney was Louis E.
Phaneuf Professor and Chairman of the Department of
Obstetrics and Gynecology at Tufts University School of
Medicine, and Chief of Obstetrics and Gynecology at the
New England Medical Center. Prior to this, Dr.
DeCherney was Director of the Division of Reproductive
Endocrinology, and was John Slade Ely Professor of
Obstetrics and Gynecology at Yale University School of
Medicine. He has been President of the International
Society of
<PAGE>
Gynecologic Endoscopy, the Society of Assisted
Reproductive Technologies, the Society of Reproductive
Surgeons, the Society of Reproductive Endocrinologists,
the American Society of Reproductive Medicine, and the
Society of Gynecologic Investigation. Dr. DeCherney is
a member of the American Board of Obstetrics and
Gynecology, is an Associate Editor of the New England
Medical Journal, and Editor of Assisted Reproductive
Reviews. In 1987, Dr. DeCherney was recipient of the
President's Achievement Award of the Society of
Gynecologic Investigation.
Michael P. Diamond, M.D. Dr. Michael P. Diamond, since 1994, has served as
Professor of Obstetrics and Gynecology at Wayne State
University in Detroit, Michigan, and Director of the
Division of Reproductive Endocrinology and Infertility.
Dr. Diamond is a Board-certified
Obstetrician/Gynecologist with a subspecialization in
Reproductive Endocrinology and Infertility. Dr. Diamond
previously served on the faculty at Yale University,
and as Associate Professor of Obstetrics and
Gynecology, and Director of the Division of
Reproductive Endocrinology and Infertility at
Vanderbilt University. He has long-standing involvement
in animal and clinical trials assessing postoperative
adhesion development.
Gere S. dizerega, M.D. Dr. Gere D. diZerega is Professor, Department of
Obstetrics and Gynecology at Women's' Hospital,
University of Southern California Medical Center. Dr.
diZerega's area of research include post-operative
adhesions, peritoneal healing and post-surgical wound
repair.
William H. Eaglstein, Dr. William Eaglstein is Professor and
M.D. Chairman of the Department of Dermatology and Cutaneous
Surgery at the University of Miami School of Medicine.
Dr. Eaglstein's studies and theories on chronic ulcer
pathogenesis have been a source of ideas and new
hypotheses for many investigators in the field. His
creation of the Wound Care Information Institute at the
University of Miami was a stimulus and precursor to the
national multidisciplinary Wound Healing Society, of
which Dr. Eaglstein is a founding member.
Bernard Hirshowitz, Dr. Bernard Hirshowitz is Professor Emeritus
M.D. of Plastic Surgery, The Bruce Rappaport Faculty of
Medicine, Technion-Israel Institute of Technology,
Haifa, Israel. Dr. Hirshowitz serves as consultant to
one of the major Sick Benefits Funds of Israel,
comparable to Blue Cross. Dr. Hirshowitz has held both
positions since 1989. Dr. Hirshowitz developed the
Sure-Closure System and was involved in the development
of the Clinicel products.
<PAGE>
Ella Lindenbaum, Ph.D. Dr. Ella Lindenbaum is the Director of the Morphology
Research Unit, The Bruce Rappaport Faculty of Medicine,
Technion-Israel Institute of Technology, Haifa, Israel.
Dr. Lindenbaum is a cell biologist, whose work led to
the development of Clinicel products and the in-situ
tissue culturing technology.
Gary L. Loomis, Ph.D. Dr. Gary Loomis is founder, president and senior
consultant of G. L. Loomis & Associates, Inc., a firm
providing technical expertise in polymer science to a
diverse international client base. Dr. Loomis is
internationally renowned as an expert in the
preparation, modification, evaluation and processing of
polymers, especially bioresorbable polymers for medical
devices and drug delivery applications.
Mehmet C. Oz, M.D. Dr. Mehmet C. Oz is Irving Assistant Professor of
Surgery at Columbia University College of Physicians
and Surgeons, New York and Director of The Assist
Device Program and attending surgeon of the Division of
Cardiothoracic Surgery at Columbia-Presbyterian Medical
Center, New York.
Eric A. Rose, M.D Dr. Eric A. Rose is Chairman, Department of Surgery at
College of Physicians & Surgeons of Columbia
University, New York, Surgeon-in-Chief of Columbia-
Presbyterian Medical Center, New York and Director,
Cardio-Thoracic Services at St. Michael's Medical
Center, Newark, New Jersey.
HISTORY
The Company is a Delaware corporation which was organized in August 1990 under
the name BioMedical Polymers International, Ltd. The Company changed its name to
Life Medical Sciences, Inc. in June 1992.
RISK FACTORS
RISK THAT TECHNOLOGIES OR PROPOSED PRODUCTS WILL NEVER BE SUCCESSFULLY DEVELOPED
The Company's polymer technology and proposed products are still under
development and are subject to the risks of failure inherent in the development
of new technologies and products based on new technologies. The Company's
polymer technology and proposed products will require significant further
research, development and testing, including extensive clinical testing and
regulatory approval, prior to commercial use. Unsuccessful results from clinical
trials of the Company's proposed products or adverse findings with respect to
these products could adversely affect some or all of the Company's proposed
products. No assurance can be given that such proposed products will prove to be
safe, efficacious and non-toxic, receive requisite regulatory approvals,
demonstrate substantial therapeutic benefit, be commercialized on a timely
basis, experience no design or manufacturing problems, be manufactured on a
large scale, be economical to market, be accepted by the marketplace, or
generate
<PAGE>
sufficient revenues to support future research and development programs. In
addition, no assurance can be given that proprietary rights of third parties
will not preclude the Company from marketing its proposed products or that third
parties will not market superior or equivalent products.
RISKS ASSOCIATED WITH UNCERTAINTIES OF CLINICAL TRIALS
The Company is required to obtain approval from the FDA prior to marketing
its proposed therapeutic products in the United States and the approval of
foreign regulatory authorities to commercialize its proposed products in other
countries. To obtain such approvals, the Company is required to prove the safety
and efficacy of its proposed products through extensive preclinical studies and
clinical trials. The Company is in various stages of such testing. The
completion of any of the Company's clinical trials is dependent upon many
factors including the rate of patient enrollment and the heterogeneity of the
patients and indications to be treated. Delays in patient enrollment, as well as
the heterogeneity of patients and indications to be treated, may result in
increased trial costs and delays in FDA submissions, which could have a material
adverse effect on the Company.
A number of companies in the biotechnology and pharmaceutical industries have
suffered significant setbacks in clinical trials, even after showing promising
results in earlier studies or trials. Although the Company has obtained
favorable results to date in preclinical studies and clinical trials of certain
of its proposed products, such results may not be predictive of results that
will ultimately be obtained in or throughout such preclinical studies and
clinical trials. There can be no assurance that the Company will not encounter
problems in its clinical trials that will cause the Company to delay or suspend
its clinical trials, that the clinical trials of its proposed products will be
completed at all, that such testing will ultimately demonstrate the safety or
efficacy of such proposed products or that any proposed products will receive
regulatory approval on a timely basis, if at all. If any such problems occur, it
could have a material adverse affect on the Company.
CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; LOSS ON SALE OR MERGER
Although the Company believes that available cash will be sufficient to meet
its cash requirements through 1998, there can be no assurance that the Company
will not require additional financing during that time or that financing will be
available on acceptable terms or at all. The Company will be required, however,
to raise substantial additional funds to continue to conduct necessary research
and development, preclinical studies and clinical trials, to commercialize its
proposed products, and to fund the growth that is expected to occur if any of
its proposed products are approved for marketing. The Company plans to seek such
additional funding through collaborative arrangements with strategic partners,
licensing arrangements for certain of its proposed products, and additional
public or private financings, including equity financings. Any additional equity
financings may be dilutive to stockholders. There can be no assurance that such
arrangements or financings will be available as needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and development programs and manufacturing
and marketing efforts, or require it to license to third parties certain
products or technologies that the Company would otherwise seek to commercialize
itself. If the Company is not able to raise additional funds as needed to
continue its research and development programs and for its intended
manufacturing and marketing efforts, it may become necessary for the Company to
attempt to be merged or sold in whole or in part with or to another entity.
There can be no assurance that such a sale or merger would be available, but if
it were, the proceeds to the Company or its stockholders from such a sale or
merger could be substantially less than the amount invested by stockholders in
the Company, resulting in significant losses to the stockholders on their
investment in the Company's securities.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
The Company has a limited history of operations that, to date, has consisted
primarily of research, development and testing of its technologies and the
commercialization of the Sure-Closure System. With the exception of the third
quarter of 1994, when the gain on the sale of the Sure-Closure System was
realized, the
<PAGE>
Company has incurred significant net losses from its inception. The Company
experienced net losses of $2,797,000, $3,830,000 and $7,666,000 for the years
ended December 31, 1995, 1996 and 1997 respectively. At December 31, 1997, the
Company had an accumulated deficit of $27,831,000 which has increased since that
date. The Company continues to expend substantial financial and other resources
on (i) research, development and testing of its polymer technology and proposed
products utilizing this technology; (ii) commercialization of its Clinicel
product line and other proposed products; (iii) research, development and
testing of other proposed products; and (iv) general and administrative
expenses. The Company expects to incur additional losses as its research,
development and preclinical studies and clinical trials continue to expand. The
Company's ability to achieve a profitable level of operations is dependent on
successfully completing the development of its proposed products, obtaining
required regulatory approvals, and manufacturing and selling its proposed
products. Accordingly, the extent of future losses and the time required to
achieve profitability, if ever, is uncertain. There can be no assurance that the
Company will achieve or sustain a profitable level of operations.
NO ASSURANCE OF REGULATORY APPROVALS; POTENTIAL DELAYS
The Company's proposed products will be subject to regulation by the FDA and
comparable agencies in foreign countries. The regulatory approval process often
takes a number of years and requires the expenditure of substantial funds. In
the United States, the FDA enforces, where applicable, development, testing,
labeling, manufacturing, registration, notification, clearance or approval,
marketing, distribution, recordkeeping and reporting requirements for new drugs,
medical devices, biologics and cosmetics. In addition, there can be no assurance
that government regulations applicable to the Company's products or the
interpretation of those regulations will not change and thereby prevent the
Company from marketing some or all of its products temporarily or permanently.
There can be no assurance that any proposed products that may be developed by
the Company will be able to satisfy the current requirements and regulations of
the FDA or comparable foreign agencies. There can be no assurance that the
Company's proposed products will ever obtain the regulatory clearance or
approval required for marketing. Products utilizing the Company's polymer
technology are likely to be regulated by the FDA as medical devices.
Whether or not FDA approval has been obtained, approval of a drug by
comparable regulatory authorities in other countries must be obtained prior to
marketing the product in those countries. The approval process varies by country
and the time required may be longer or shorter than that required for FDA
approval. Approval of a drug for sale in one country does not ensure approval in
other countries. The results of Phase I or Phase II studies are not necessarily
indicative of the efficacy or safety of a drug candidate for human therapeutic
use. There can be no assurance that clinical testing will provide evidence of
safety and efficacy in humans or that regulatory approvals will be granted for
any of the Company's products. Manufacturers of therapeutic products are
required to obtain FDA approval of their manufacturing facilities and processes,
to adhere to applicable standards for manufacturing practices and to engage in
extensive recordkeeping and reporting. Failures to obtain or delays in obtaining
regulatory approvals would adversely affect the manufacturing and marketing of
the Company's products, the Company's financial position and the Company's
revenues or royalties. When and if approvals are granted, the Company, the
approved drug, the manufacture of such drug and the facilities in which such
drug is manufactured are subject to ongoing regulatory review. Subsequent
discovery of previously unknown problems may result in restriction on a
product's use or withdrawal of the product from the market. Adverse government
regulation that might arise from future legislative or administrative action,
particularly as it relates to healthcare reform and product pricing, cannot be
predicted.
PATENTS AND PROPRIETARY RIGHTS; NO ASSURANCE OF ENFORCEABILITY OR SIGNIFICANT
COMPETITIVE ADVANTAGE
The Company's success will depend heavily on its ability to obtain and retain
patent protection for its polymer technology and any proposed products, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. The Company owns three United States patents, one
Canadian patent and two Israeli patents relating to its polymer technology. In
addition, the Company has filed for patents in a number of countries and intends
to file additional patent applications in other countries. There can be no
assurance that the claims in the pending patent applications will issue as
patents, that any issued patents will provide the Company with significant
competitive advantages, that challenges will not be instituted against the
validity or enforceability of any patent owned by the Company, or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold
<PAGE>
the validity and prevent infringement of a patent can be substantial.
Furthermore, there can be no assurance that others will not independently
develop similar or superior technologies, duplicate the Company's technologies
or design around the patented aspects of the Company's technologies. The Company
could incur substantial costs in proceedings before the United States Patent and
Trademark Office, including interference proceedings. The proceedings could also
result in adverse decisions as to the patentability of the Company's licensed or
assigned inventions. Further, there can be no assurance that the Company will
not infringe upon prior or future patents owned by others, that the Company will
not need to acquire licenses under patents belonging to others for technology
potentially useful or necessary to the Company, or that such licenses will be
available to the Company, if at all, on terms acceptable to the Company.
Moreover, there can be no assurance that any patent issued to or licensed by the
Company will not be infringed by others. Lastly, there can be no assurance that
third parties will not bring suits against the Company for patent infringement
or for declaratory judgment to have the patents owned or licensed by the Company
declared invalid. While obtaining patents is deemed important by the Company,
patents are not considered essential to the success of its business. However, if
further patents do not issue from present or future patent applications, the
Company may be subject to greater competition. The Company also relies on trade
secrets and other unpatented proprietary technology to protect its innovations.
There can be no assurance that the Company can meaningfully protect its rights
in such unpatented technology, or that others will not independently develop
substantially equivalent or superior products and processes or otherwise gain
access to the Company's technologies, that trade secrets will be established or
that secrecy obligations will be honored. To the extent that consultants, key
employees, third parties involved in the Company's projects or others
independently develop technological information, disputes may arise as to the
proprietary rights to such information, which may not be resolved in favor of
the Company.
The Company seeks to protect its trade secrets and proprietary know-how, in
part, through confidentiality agreements with its employees, consultants,
advisors, collaborators and others. There can be no assurance that these
agreements will not be violated by the other parties, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. The Company
has relationships with a number of consultants who are employed by organizations
other than the Company. These persons may have consulting, employment or
advisory arrangements with other entities that may conflict or compete with
their obligations to the Company. Consultants generally sign agreements that
provide for confidentiality of the Company's proprietary information and results
of studies. There can be no assurance, however, that the Company will, in
connection with every relationship, be able to maintain the confidentiality of
the Company's technology, dissemination of which could have a material adverse
effect on the Company. To the extent that the Company's scientific consultants
develop inventions or processes independently that may be applicable to the
Company's proposed products, disputes may arise as to the ownership of the
proprietary rights to such information. Such inventions or processes will not
necessarily become the property of the Company, but may remain the property of
such persons or their full-time employers. The Company could be required to make
payments to the owners of such inventions or processes, either in the form of
cash, equity or a combination thereof. In addition, protracted and costly
litigation may be necessary to enforce and determine the scope and validity of
the Company's proprietary rights.
POTENTIAL DEPENDENCE ON REIMBURSEMENT
Successful commercialization of the Company's proposed products may depend in
part on the availability of adequate reimbursement from third-party health care
payors such as Medicare, Medicaid and private insurance plans. Reimbursement
matters include both coverage issues and payment issues. Questions of coverage
raise the issue of whether a product will be paid for at all and under what
circumstances. Questions of payment relate to the amount or level of payment.
Reimbursement policies vary among payors and may depend on the setting in which
a product is used.
There are numerous governmental third-party payors. Medicare is a federally
funded health insurance for persons age 65 or older, who have end stage renal
disease, or otherwise qualify by virtue of a disability. Medicare is the largest
single health insurance program in the United States. Medicaid is a joint
federal-state welfare program to provide health services to the indigent. The
Department of Veterans Affairs provides a variety of medical services to
veterans both directly and through arrangements with private health care
providers. The Civilian Health and Medical Program for the Uniformed Services
pays for care and services furnished to dependents of members of the
<PAGE>
armed forces. There are also numerous private health insurance plans, including
private nonprofit insurers (e.g., Blue Cross and Blue Shield plans), commercial
insurers, and various types of managed care organizations.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products. There can be no assurance that adequate third-
party reimbursement will be available for the Company to establish and maintain
price levels sufficient for realization of an appropriate return on its
investment in developing new therapies. Government and other third-party payors
are increasingly attempting to contain health care costs by limiting both
coverage and payment levels for new therapeutic products approved for marketing
by the FDA and by refusing, in some cases, to provide any coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and payment levels are not provided by
government and third-party payors for the Company's proposed products, the
market acceptance of these products would be adversely affected. Failure of the
Company's proposed products to be adequately reimbursed by third-party payors
could have a material adverse effect on the Company.
UNCERTAIN MARKET ACCEPTANCE OF PROPOSED PRODUCTS
The Company's future growth and profitability will depend, in large part, on
the acceptance by the medical community of the Company's proposed products. This
acceptance will be substantially dependent on educating the medical community as
to the full capabilities, distinctive characteristics, perceived benefits and
clinical efficacy of the Company's proposed products. There can be no assurance
that the Company's efforts or those of others will be successful or that any of
the Company's proposed products will receive the necessary market acceptance.
Failure of the Company's proposed products to gain market acceptance would have
a material adverse effect on the Company.
RISK OF NOT OBTAINING ADDITIONAL MANUFACTURING FACILITIES AND EXPERIENCED
MANUFACTURING PERSONNEL AND/OR ESTABLISHING MANUFACTURING ARRANGEMENTS WITH
OTHERS
The Company believes it currently has contracted for sufficient manufacturing
capabilities to allow for production of its proposed products in quantities
sufficient to support its current commercial needs and clinical programs. The
Company intends to seek out contracts to obtain additional manufacturing
capabilities to allow for increased production of its proposed products in
quantities sufficient to support its anticipated needs. To be successful,
however, the Company must be capable of manufacturing or contracting for the
manufacture of its products in commercial quantities, in compliance with
regulatory requirements and at acceptable costs. The Company may enter into
additional contractual arrangements to manufacture its proposed products at such
time, if ever, that such products are successfully developed. There can be no
assurance that the Company will be able to enter into any such arrangements on
acceptable terms, or at all, or that any manufacturer will be able to meet any
demand for such products on a timely basis. The Company may manufacture its
proposed products directly at such time, if ever, that such products are
successfully developed. The Company has no experience with the direct
manufacture of these proposed products although certain of the Company's
officers have had experience in similar activities for other companies. The
manufacture of these proposed products is complex and difficult, and will
require the Company to attract and retain experienced manufacturing personnel
and to obtain the use of a manufacturing facility in compliance with FDA and
other regulatory requirements. There can be no assurance that experienced
personnel can be attracted to or retained by the Company, or that the Company
will be able to obtain the financing necessary to manufacture these products
directly.
DEPENDENCE UPON SUPPLIERS
The Company is dependent upon subcontractors to manufacture and deliver
certain components of its proposed products in a timely and satisfactory manner.
Failure to procure such components or any interruption in the supply of such
components could have a material adverse effect on the Company.
<PAGE>
RELIANCE ON ARRANGEMENTS WITH OTHERS; LIMITED MARKETING AND SALES EXPERIENCE
The Company has limited experience in marketing and sales although certain of
the Company's officers have had experience in similar activities for other
companies. If any of the Company's proposed products are successfully developed,
the Company may rely on joint venture, licensing or collaborative arrangements
for marketing and selling such proposed products in certain geographic markets.
No agreements have been entered into and there can be no assurance that the
Company will be successful in establishing such arrangements, or that its co-
venturer, licensee or collaborator in such arrangements will be successful in
marketing and selling such products. These arrangements may result in the lack
of control by the Company over the marketing and selling of its proposed
products. The Company may choose to market and sell such products directly and,
to do so, the Company would have to develop a specialized marketing and sales
force with technical expertise. There can be no assurance that the Company will
be able to build such a marketing or sales force, that the cost of establishing
such a marketing or sales force will not exceed any product revenues, or that
the Company's direct sales and marketing efforts will be successful. In
addition, the Company will compete with many other companies that currently have
extensive and well-funded marketing and sales operations.
RISK OF TERMINATION OF, OR LOSS OF RIGHTS TO, TECHNOLOGIES UNDER AGREEMENTS WITH
OTHERS
The Company has acquired the rights to its technologies pursuant to
agreements with research institutions. Such agreements contain provisions
requiring the Company, among other things, to develop, commercialize and/or
market products, to achieve minimum sales and/or income levels within certain
periods of time, to meet minimum funding requirements and to make royalty
payments in order to maintain the patents and other rights granted thereunder.
In addition, the patents and proprietary rights revert to the grantor on certain
dates and/or upon the occurrence of certain conditions. In the event that
certain patents and proprietary rights were to revert to the grantor, it would
have a material adverse affect on the Company.
DEPENDENCE UPON THIRD PARTIES FOR CLINICAL DEVELOPMENT OF PROPOSED PRODUCTS
The Company may enter into strategic alliances for the clinical development
of certain of its proposed products. There can be no assurance that the Company
will be successful in obtaining satisfactory agreements with strategic partners.
In addition, there can be no assurance that the interests and motivations of any
strategic partner would be or remain consistent with those of the Company or
that such partner would successfully perform its obligations.
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE
The Company is engaged in rapidly evolving and highly competitive fields.
Competition from biotechnology companies, medical device manufacturers,
pharmaceutical and chemical companies and other competitors is intense. Many of
these companies have substantially greater capital resources, research and
development staffs, facilities and experience in obtaining regulatory approvals
than the Company as well as substantially more experience than the Company in
the manufacturing, marketing and sale of products. Academic institutions,
hospitals, governmental agencies and other public and private research
organizations are also conducting research and seeking patent protection and may
develop competing products or technologies on their own or through joint
ventures. In addition, recently developed technologies or technologies that may
be developed in the future are, or may be, the basis for competitive products.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective and/or less costly
than those being developed by the Company, thereby rendering the Company's
technologies not competitive or obsolete. The Company's proposed products may
become obsolete before the Company can obtain approval to market them or before
it can recoup related research and development or commercialization expenses.
Competitors may also be more successful than the Company in production and
marketing.
The Company believes that its competitive position will be based on its
ability to create and maintain
<PAGE>
scientifically advanced technology and proprietary products, obtain required
government approvals on a timely basis, develop and manufacture its proposed
products on a cost-effective basis and successfully market its products. There
can be no assurance that the Company's proposed products under development will
be able to compete successfully with existing products or products under
development by other companies, universities and other institutions or that they
will attain regulatory approval in the United States or elsewhere.
ANTI-KICKBACK AND FRAUD AND ABUSE LAWS
Several types of state and federal laws have been applied to restrict certain
marketing practices in the pharmaceutical industry in recent years. These
include anti-kickback statutes and consumer protection laws prohibiting unfair
or deceptive trade practices.
The federal Medicare/Medicaid anti-kickback statute prohibits persons from
knowingly and willfully offering, paying, soliciting, or receiving remuneration
to induce or in return for purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing or ordering any service or item payable under
Medicare, Medicaid or certain other federally funded state health care programs.
These provisions have been broadly interpreted to apply to certain relationships
between manufacturers, prescribers, purchasers of manufacturers' products, and
parties, such as pharmacies, in a position to refer or recommend purchases.
There are six statutory exceptions to the basic prohibition against
kickbacks. Such protected practices include properly disclosed discounts or
other reductions in price, payments to bona fide employees, payments to group
purchasing organizations, waivers of coinsurance for Medicare Part B services
for certain individuals who qualify for certain Public Health Service programs,
remuneration under certain risk-sharing arrangements and payment practices set
forth in regulations defining conduct that will not be subject to enforcement
(i.e., the "safe harbors"). The federal safe harbor regulations contain further
refinements of the statutory exceptions, and also contain safe harbors for,
among other things, warranties, personal services contracts, and reductions in
prices to health plans by contract health care providers. Although failure to
satisfy all of the criteria for a particular safe harbor does not necessarily
mean that an arrangement is unlawful, practices that involve remuneration
intended to induce prohibited purchases or recommendations may be subject to
scrutiny if they do not qualify for the safe harbor. The Company's practices may
not in all cases meet all of the criteria for safe harbor protection from anti-
kickback liability.
Several states also have statutes or regulations similar to the federal
Medicare/Medicaid anti-kickback statute, including some laws which apply
regardless of whether payment for the services in question may be made under
Medicare, Medicaid or state health programs. A number of states also have
recently sought to regulate pharmaceutical promotion - and particularly
manufacturer-sponsored incentives to promote the utilization of their products -
through state consumer protection statutes.
Because of the breadth of these statutes, it is possible that some of the
Company's business activities could be subject to challenge under one or more of
such laws.
RISK OF USING HAZARDOUS MATERIALS
Medical and biopharmaceutical research and development involves the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that all of its current contractors comply and future contractors will
comply with safety procedures for handling and disposing of such materials under
the standards prescribed by federal, state and local regulations, the risk of
accidental contamination or injury from those materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations and
currently does not expect to make material capital expenditures for environment
control facilities in the near-term, there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental
laws and regulations, or any assurance that the operations, business or assets
of the Company will not be materially adversely affected by current or future
environmental laws, rules, regulations or policies.
<PAGE>
DEPENDENCE UPON ATTRACTION AND RETENTION OF KEY PERSONNEL AND CONSULTANTS
The Company is dependent upon a limited number of key management, scientific
and technical personnel. In addition, the Company's future success will depend
in part upon its ability to attract and retain highly qualified personnel. The
Company competes for such personnel with other companies, academic institutions,
government entities and other organizations. There can be no assurance that the
Company will be successful in hiring or retaining qualified personnel. Loss of
key personnel or the inability to hire or retain qualified personnel could have
a material adverse effect on the Company. In addition, the Company relies upon
consultants and advisors to assist the Company in formulating its research and
development strategies, testing and manufacturing and marketing-related issues.
All of the Company's consultants and advisors are employed outside the Company
and may have commitments or consulting or advisory contracts with other
entities.
RISK OF PRODUCT LIABILITY CLAIMS; INSURANCE
The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of medical products. The
use of the Company's proposed products in clinical trials may expose the Company
to product liability claims and possible adverse publicity. These risks also
exist with respect to the Company's proposed products, if any, that receive
regulatory approval for commercial sales. The Company currently has limited
product liability insurance coverage for the use of its proposed products in
clinical trials and for the commercial sale of Clinicel. However, there can be
no assurance that the Company will be able to obtain additional insurance
coverage at acceptable costs, if at all, or be able to maintain the current
level of insurance. Further, there can be no assurance that a product liability
claim would not materially adversely affect the Company. A product liability or
other judgment against the Company in excess of the Company's insurance coverage
could have a material adverse effect upon the Company.
RISK INHERENT IN INTERNATIONAL SALES AND OPERATIONS
The Company intends to sell its proposed products outside of the United
States, as well as domestically. A number of risks are inherent in international
transactions. International sales and operations may be limited or disrupted by
the imposition of governmental controls, regulation of medical devices and other
medical products, export license requirements, political instability, trade
restrictions, changes in tariffs, exchange rate fluctuations and difficulties in
managing international operations.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation, as amended authorizes
the issuance of a maximum of 5,000,000 shares of preferred stock ("Preferred
Stock") on terms that may be fixed by the Company's Board of Directors without
further stockholder action. The terms of any series of Preferred Stock could
adversely affect the rights of holders of the Common Stock. No Preferred Stock
has been issued to date and the Company has no current plans to issue Preferred
Stock. The issuance of Preferred Stock could make the possible takeover of the
Company more difficult or otherwise dilute the rights of holders of the Common
Stock and the market price of the Common Stock. In addition, the Company is
subject to Delaware General Corporation Law provisions that may have the effect
of discouraging persons from pursuing a non-negotiated takeover of the Company
and preventing certain changes of control.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE; OUTSTANDING WARRANTS AND OPTIONS; REGISTRATION
RIGHTS
Of the Company's 7,922,559 shares of Common Stock currently outstanding,
1,807,872 shares are "restricted securities," as defined in Rule 144 of the
Securities Act, and under certain circumstances may be sold without registration
pursuant to Rule 144. The Company is unable to predict the effect that sales
made under Rule 144, or otherwise, may have on the then prevailing market price
of the Common Stock. Any substantial sale of restricted securities pursuant to
Rule 144 may have an adverse effect on the market price of the Common Stock. The
"restricted securities" are eligible for sale under Rule 144.
The Company has outstanding (i) Class A Warrants and Class B Warrants, which
could result in the issuance of 4,768,059 additional shares of Common Stock,
(ii) 1,150,000 shares of Common Stock issuable upon exercise of options which
have been granted under the Company's Amended and Restated 1992 Stock Option
Plan (the "Plan"), and (iii) approximately 725,000 shares of Common Stock
issuable upon exercise of currently outstanding options granted outside the
Plan. In connection with the public offering in May 1996, the Company sold to
the underwriter of that offering, a warrant to purchase 200,000 shares of
Common Stock. Such warrant is exercisable for a period of five years, commencing
May 3, 1998 and has an exercise price of $7.95 per share. The foregoing options
and warrants are likely to be exercised at a time when the Company might be able
to obtain additional equity capital on more favorable terms. While these options
and warrants are outstanding, they may adversely affect the terms on which the
Company could obtain additional capital. The Company cannot predict the effect,
if any, that market sales of Common Stock, the exercise of options or warrants
or the availability of such Common Stock for sale will have on the market price
prevailing from time to time. In addition, if the exercise price of options or
warrants are adjusted downward, such options or warrants may be exercised sooner
than otherwise with a resulting increase in the number of shares of Common Stock
available for sale on the market.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. In addition, the market price of the Company's Common
Stock and the Class A and Class B Warrants has been and is likely to continue to
be highly volatile. Factors such as fluctuations in the Company's operating
results, shortfalls in revenue or earnings from levels expected by securities
analysts, announcements of technological innovations or new products by the
Company or its competitors, governmental regulations, developments with respect
to patents or proprietary rights, litigation, public concern as to the safety of
products developed by the Company or others and general market conditions may
have a significant adverse effect on the market price of the Common Stock and
the Warrants.
RISK OF NO DIVIDENDS
The Company has never declared or paid any cash dividends on the Common
Stock. There is a risk that the Company may never declare or pay any dividends
on the Common Stock.
<PAGE>
ITEM 2. PROPERTIES
The Company's executive offices are located in an aggregate of approximately
3,550 square feet of office space in Edison, New Jersey, pursuant to an
operating lease for the period of November 1996 to November 2001. The lease
provides for an annual fixed rent of approximately $80,000 per year for the five
year term, and for the payment of certain operating expenses.
The Company's research and development activities and clinical studies are
currently conducted at various hospitals and universities in the United States
and certain European countries. The Company believes that these facilities are
adequate for its current research and development needs. The Company will be
required to add additional sites in connection with its expanded development and
testing activities. Currently the Company utilizes contract manufacturing
organizations to produce its proposed products for research and development
activities, clinical studies and for commercial sale.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Executive Officers of the Company
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
NAME Age Positions with the Company
- ------------------------------- ----- ---------------------------------------------------
<S> <C> <C>
Dr. Herbert Moskowitz.......... 57 Chairman of the Board of Directors
Robert P. Hickey............... 52 President and Chief Executive Officer
Eli Pines, Ph.D................ 52 Vice President and Chief Scientific Officer
Donald W. Fallon............... 43 Vice President, Chief Financial Officer and
Treasurer
</TABLE>
Dr. Herbert Moskowitz is a co-founder of the Company and is currently the
Chairman of the Board of Directors. Dr. Moskowitz has served as Chairman of the
Board, President and Chief Executive Officer at various periods since the
Company's inception in 1990. Dr. Moskowitz is also president, director and a
principal stockholder of Magar Inc., a private investment firm. Magar Inc. is a
principal stockholder of the Company. He is a co-founder of Advanced Tissue
Sciences, Inc., a publicly traded medical technology company, and at various
periods from 1986 to 1989 served as director, chairman of the board, president
and chief executive officer. Dr. Moskowitz, a former practicing dentist, has
been active in the healthcare field since 1958.
Robert P. Hickey has served as President and Chief Executive Officer since May
29, 1996 and as a Director since August 1996. From May 1994 until joining the
Company, Mr. Hickey was founder and president of Roberts Healthcare Resources,
Inc., a company engaged in project consulting to Fortune 500 and leading edge
companies in the healthcare industry. From 1975 to 1994 Mr. Hickey served in
various positions at Johnson & Johnson. From 1992 to 1994, Mr. Hickey was Vice
President, Marketing and Director of Ethicon, Inc., a unit of Johnson & Johnson.
Eli Pines, Ph.D. has served as a Vice President and the Chief Scientific
Officer of the Company since June 1995. From June 1992 to June 1995 Dr. Pines
served as vice president and chief technical officer for Fibratek, Inc., a
biopharmaceutical company engaged in research, development and production of
medical products. Prior to joining Fibratek, Inc., Dr. Pines was employed for
seventeen years by Johnson & Johnson, where his last position was director of
new products research and development with worldwide responsibilities for the
Surgical Specialty Division of Johnson & Johnson Medical, Inc. Dr. Pines
received a BS in Chemistry from Brooklyn College in 1968, a Ph.D. in Biophysics
from Syracuse University in 1972 and conducted post doctoral research in
Biochemistry at The Rockefeller University from 1972 to 1974.
Donald W. Fallon has served as a Vice President and Chief Financial Officer
since July 1995 and as Treasurer since May 30, 1996. From September 1992 to July
1995, Mr. Fallon was the director of finance and administration for
Oncotherapeutics, Inc., a development stage biotechnology company focusing on
immunotherapies for cancer and infectious diseases. From May 1990 to September
1992, Mr. Fallon was the director of finance at Otsuka America Pharmaceutical,
Inc., the North American research and development branch of Otsuka
Pharmaceutical Company in Japan. Mr. Fallon has 20 years of comprehensive
experience in accounting, finance and administration.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information
The Company's Common Stock, Units, Class A Warrants, and Class B Warrants
have traded separately on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") Stock Market under the symbols CHAI,
CHAIU, CHAIW, and CHAIZ, respectively, since September 22, 1992. Effective
November 14, 1997, the Units were deleted from The Nasdaq Stock Market because
there were no active market makers registered to trade the securities. The
following sets forth the quarterly high and low sales price for the periods
presented as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Unit Warrant Warrant
Price Sales Sales Price Sales Price Sales Price
--------------- -------------- ---------------- -----------------
High Low High Low High Low High Low
---- ---- ---- ---- ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended December
31, 1996
First Quarter............ $11 3/8 $6 1/2 $18 1/2 $13 1/4 $5 1/4 $2 7/8 $2 3/4 $ 1 15/16
Second Quarter........... 9 3/4 6 3/4 15 12 4 7/8 3 1/4 2 3/8 1 7/8
Third Quarter............ 8 1/8 6 12 1/2 11 4 7/8 3 2 3/16 1 3/8
Fourth Quarter........... 7 1/8 4 1/8 10 1/2 7 3 1/4 1 15/32 1 19/32 1
Fiscal Year Ended December
31, 1997
First Quarter............ 7 3/16 3 1/4 10 1/2 6 3 1 3/8 1 5/16 5/8
Second Quarter........... 5 1/4 3 7 1/2 6 2 1/4 1 5/16 15/16 1/2
Third Quarter............ 5 1/8 3 1/8 8 6 2 15/16 1 1/4 1 3/8
Fourth Quarter........... 5 3/4 1 3/8 6 5 1/2 2 1/4 3/8 1 1/4
Fiscal Year Ended
December 31, 1998
January 1 through
March 23 , 1998 2 1/4 1 5/8 3/16 1/4 1/16
</TABLE>
Each Unit consists of one share of Common Stock, one Redeemable Class
A Warrant and one Redeemable Class B Warrant. The components of the Units are
transferable separately. Each Class A Warrant entitles the holder to purchase,
at an exercise price of $8.40, subject to adjustment, 1.071474 shares of Common
Stock and one Class B Warrant, and each Class B Warrant entitles the holder to
purchase, at an exercise price of $12.60, subject to adjustment, 1.071474 shares
of Common Stock. These exercise prices were adjusted from the initial exercise
prices of $9.00 and $13.50 per share, respectively, at the time the Class A
Warrants and Class B Warrants were issued due primarily to public offerings
completed in the second half of 1993 and the first half of 1996. The Class A
Warrants and the Class B Warrants (collectively, the "Warrants") are exercisable
at any time after issuance until September 21, 1998. The Warrants are subject
to redemption by the Company for $.05 per Warrant, upon 30 days written notice,
if the average closing bid price of the Common Stock exceeds $12.60 per share
with respect to Class A Warrants and $18.90 per share with respect to Class B
Warrants (subject to adjustment in each case) for 20 consecutive business days
ending the date on which the notice of redemption is given.
(b) Approximate Number of Equity Securities Holders
As of March 23, 1998 the number of holders of record of the Company's
Common Stock was 163. The Company believes that the number of beneficial
holders of its Common Stock on such date was in excess of 400.
(c) Dividends
The Company has never paid a cash dividend on its Common Stock and
anticipates that for the foreseeable future any earnings will be retained for
use in its business and, accordingly, does not anticipate the payment of any
cash dividends.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below (in thousands, except per share
data), as of and for the years ended December 31, 1993, 1994, 1995, 1996 and
1997, have been derived from audited financial statements of the Company. The
financial statements of the Company as of December 31, 1996 and 1997 and for the
years ended December 31, 1995, 1996 and 1997, together with the notes thereto
and the related report of Richard A. Eisner & Company, LLP, independent
auditors, are included elsewhere in this Form 10-K. The selected financial data
set forth below should be read in conjunction with the Financial Statements of
the Company and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product sales $ 265 $ 1,496 $ $ $
Royalty Income 245 155 64
Operating expenses:
Cost of sales 52 551
Research and development 2,493 2,013 1,994 2,779 6,271
Sales and marketing 2,209 2,931
General and administrative 2,508 2,791 1,231 1,743 2,012
------- ------- ------- ------- -------
Operating expenses 7,262 8,286 3,225 4,522 8,283
------- ------- ------- ------- -------
(Loss) from operations (6,997) (6,790) (2,980) (4,367) (8,219)
Interest income 132 78 183 540 557
Interest expense (51) (41) (3) (4)
Gain on sale of the Sure-Closure 3,354
System
------- ------- ------- ------- -------
Net (loss) $(6,916) $(3,399) $(2,797) $(3,830) $(7,666)
======= ======= ======= ======= =======
Net (loss) per share $ (2.05) $(.84) $ (.58) $ (.55) $ (.97)
======= ======= ======= ======= =======
Weighted average shares 3,372 4,061 4,820 6,976 7,919
outstanding
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash , cash equivalents and investments.. $ 6,177 $ 1,980 $ 3,828 $ 14,278 $ 7,569
Working capital............................ 5,458 2,794 3,657 14,121 5,975
Total assets............................... 6,737 3,234 3,964 14,801 7,786
Total liabilities.......................... 1,738 997 864 1,007 1,621
Accumulated deficit........................ (10,139) (13,538) (16,335) (20,165) (27,831)
Stockholders' equity....................... 4,999 2,237 3,100 13,794 6,165
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
Condition And Results of Operations
Financial Overview
Since its inception, the Company has been engaged primarily in research and
development of its technologies and proposed products, commercialization of the
Sure-Closure System and organizational activities. In July 1994, the Company
sold the Sure-Closure System and focused its resources primarily on development
of its in-situ tissue culturing technology and bioresorbable polymer technology
as well as proposed products to be derived from such technologies. During the
second half of 1997, the Company concluded that its in-situ tissue culturing
technology products in clinical trials would not yield the desired benefits and
therefore revised its strategy to concentrate its resources on the proposed
products based on its bioresorbable polymer technology. All revenue to date has
been derived from sales of the Sure-Closure System or the royalties thereon.
RESULTS OF OPERATIONS
1996 vs. 1997
The Company had revenue of $155,000 and $64,000 from royalties on sales of the
Sure-Closure System for the fiscal years ended December 31, 1996 and 1997,
respectively. The reduction in royalties from 1996 to 1997 can be attributed to
the reduced sales of the Sure-Closure System.
The Company incurred research and development expenses of $2,779,000 and
$6,271,000 for the fiscal years ended December 31, 1996 and 1997, respectively.
This increase can be attributed to increased spending for the development, pre-
clinical and clinical studies and manufacturing development of bioresorbable
polymer adhesion prevention products, conduct of the European clinical studies
of Cariel and Piliel and the domestic clinical study of Clinicel and additional
expenditures supporting the management of the research and development function.
During 1997, the Company acquired machinery and equipment for use in its
bioresorbable polymer technology research and development program for
approximately $996,000. Accordingly, this cost was charged to research and
development expense as incurred. Additionally, a non-cash expense for stock-
based compensation costs of $456,000 was recorded in 1996. There was no such
expense in 1997. Research and development expenses are expected to increase for
1998 from the 1997 levels as the Company expands development of and conducts
additional clinical trials on several products.
General and administrative expenses, which consist principally of management
compensation, professional fees, investor materials and travel expenses were
$1,743,000 and $2,012,000 for the fiscal years ended December 31, 1996 and 1997,
respectively. This increase is attributable to the additional expenditures in
connection with the business development effort during 1997.
Interest income was $540,000 and $557,000 for the fiscal years ended December
31, 1996 and 1997, respectively. Interest income increased primarily as a
result of a larger average cash balance in 1997 as compared to 1996 due to the
public offering completed in May 1996.
Interest expense was $3,000 and $4,000 for the fiscal years ended December 31,
1996 and 1997, respectively. For both 1996 and 1997, these balances represent
the interest on capital leases entered into during 1996 and 1997 to acquire
certain office equipment.
The Company's net loss was $3,830,000 and $7,666,000 for the fiscal years
ended December 31, 1996 and 1997, respectively. This increase was primarily the
result of the increased scale of operations as the Company expanded its product
development efforts and strengthened its management.
<PAGE>
1995 vs. 1996
The Company had revenue of $245,000 and $155,000 from royalties on sales of
the Sure-Closure System for the fiscal years ended December 31, 1995 and 1996,
respectively. The reduction in royalties from 1995 to 1996 can be attributed to
the reduced sales of the Sure-Closure System.
The Company incurred research and development expenses of $1,994,000 and
$2,779,000 for the fiscal years ended December 31, 1995 and 1996, respectively.
This increase can be attributed to increased spending due to the development and
pre-clinical studies of bioresorbable polymer adhesion prevention products, a
full year of expenditures supporting the management of the research and
development function, offset by a reduction in the clinical trial expenditures
on Cariel and Piliel. Additionally, a non-cash expense for stock based
compensation costs of $456,000 was recorded in 1996. There was no such expense
in 1995.
General and administrative expenses, which consist principally of management
compensation, professional fees, investor materials and travel expenses were
$1,231,000 and $1,743,000 for the fiscal years ended December 31, 1995 and 1996,
respectively. This increase is attributable to the additional management added
during 1996.
Interest income was $183,000 and $540,000 for the fiscal years ended December
31, 1995 and 1996, respectively. Interest income increased primarily as a
result of a larger cash balance in 1996 as compared to 1995 due to the public
offering completed in May 1996.
Interest expense was $3,000 for the fiscal year ended December 31, 1996, which
represents the interest on capital leases entered into to acquire certain office
equipment.
The Company's net loss was $2,797,000 and $3,830,000 for the fiscal years
ended December 31, 1995 and 1996, respectively. This increase was primarily the
result of the increased scale of operations as the Company expanded its product
development efforts and strengthened its management.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash, cash equivalents and investments
of $7,569,000 compared to $14,278,000 at December 31, 1996. The cash, cash
equivalents and investments for December 31, 1997, primarily reflect the
remaining proceeds of the approximately $13.4 million public offering of Common
Stock made during May 1996.
Although the Company believes that the available cash will be sufficient to
meet its cash requirements through 1998, there can be no assurance that the
Company will not require additional financing during that time or that financing
will be available on acceptable terms or at all. The Company will be required,
however, to raise substantial additional funds to continue the clinical
development and commercialization of its proposed products and to fund the
growth that is expected to occur if any of its proposed products are approved
for marketing. The Company plans to seek such additional funding through
collaborative arrangements with strategic partners, licensing arrangements for
certain of its proposed products and additional public or private financings,
including equity financings. Any additional equity financings may be dilutive to
stockholders. There can be no assurance that such arrangements or financings
will be available as needed or on terms acceptable to the Company. Insufficient
funds may require the Company to delay, scale back or eliminate some or all of
its research and development programs and manufacturing and marketing efforts or
require it to license to third parties certain products or technologies that the
Company would otherwise seek to commercialize itself.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements appears on page F-1, the Report of
Independent Auditors appears on page F-2, and the Financial Statements and Notes
to Financial Statements appear on pages F-3 to F-16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this item is incorporated by reference herein
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A within 120 days after the close of the 1997 fiscal year. Certain
information with regard to the executive officers of the Company is contained in
Item 4 hereof and is incorporated by reference in this Part III.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A within 120 days after the close of the 1997 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A within 120 days after the close of the 1997 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A within 120 days after the close of the 1997 fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. FINANCIAL STATEMENTS.
An Index to Financial Statements appears on page F-1.
2. SCHEDULES.
None
3. EXHIBITS.
3.1 Restated Certificate of Incorporation of Registrant, filed December 26,
1991, as amended. (1)
3.1(a) Amendment to Restated Certificate of Incorporation, dated August 21,
1992. (1)
3.2 By-Laws of Registrant. (1)
10.1 Amended and Restated 1992 Stock Option Plan of Registrant. (14) (15)
10.2 Agreement, dated June 14, 1991, between Registrant and Yissum Research
Development Company of the Hebrew University of Jerusalem ("Yissum").
(1)
10.5 Form of Indemnification Agreement entered into between Registrant and
certain officers and directors of Registrant. (2)
10.6 Agreement, dated June 1991, between Registrant and the Technion
Research and Development Foundation, Ltd. (the "Technion") as assigned
by the Technion to Dimotech, Ltd. (1)
<PAGE>
10.7 Agreement, dated as of April 14, 1992, between Registrant and Mr. Joel
Gold. (1) (15)
10.8 Assignment of rights relating to a patent on wound dressing to
Registrant by Dimotech, Ltd. (3)
10.9 Assignment of certain rights relating to the polymer technology to
Registrant by Yissum. (3)
10.10 Supplemental Assignment of rights relating to the in-situ tissue
culturing technology to Registrant by the Technion. (4)
10.11 Form of Non-Qualified Stock Option Agreement. (4) (15)
10.12 Form of Incentive Stock Option Agreement. (4) (15)
10.13 Asset Purchase Agreement between Registrant and MedChem Products, Inc.
dated as of July 29, 1994. (5)
10.14 Option Agreement, dated October 26, 1994, between Registrant and
Edward J. Quilty. (6)
10.15 Underwriting Agreement between Registrant and D.H. Blair Investment
Banking Corp. (7)
10.16 Unit Purchase Option between Registrant and D.H. Blair Investment
Banking Corp. (7)
10.19 Agreement, dated as of February 3, 1994, between Registrant and
Dimotech, Ltd. (7)
10.20 Warrant Agreement among Registrant, D. H. Blair Investment Banking
Corp. and American Stock Transfer & Trust Company including forms of
Class A and Class B Warrants. (7)
10.21 Warrant Agreement among Registrant and American Stock Transfer and
Trust Company. (7)
10.22 Agreement, dated as of February 1994, between Registrant and Yissum.
(7)
10.23 M/A Agreement, dated September 22, 1992, between Registrant and D. H.
Blair Investment Banking Corp. (7)
10.24 Option Agreement, dated as of December 13, 1993, between Registrant and
Dimotech, Ltd. (7)
10.25 Employment Agreement dated June 12, 1995 between Registrant and Eli
Pines, Ph.D. (8) (15)
10.26 Employment Agreement dated June 12, 1995 between Registrant and Donald
W. Fallon. (9) (15)
10.27 Amendment No. 2 dated as of January 1, 1996 to the Agreement between
the Registrant and Yissum. (2)
10.28 Agreement dated July 16, 1995 between the Registrant and Dimotech, Ltd.
(2)
10.29 Amendment No. 2 dated February 11, 1996 to the Agreement between the
Registrant and Dimotech, Ltd. (2)
10.30 Option Agreement dated March 21, 1995 between Registrant and Herbert
Moskowitz. (2) (15)
10.31 Option Agreement dated March 21, 1995 between Registrant and Irwin
Rosenthal. (2) (15)
10.32 Assignment of rights relating to a patent for treatment of Keloid and
Hypertrophic scars to Registrant from Dimotech, Ltd. (2)
10.35 Warrant Agreement between Registrant and Wedbush Morgan Securities.
(13)
10.36 Underwriting Agreement between Registrant and Wedbush Morgan
Securities. (13)
10.37 Employment Agreement dated May 29, 1996 between Registrant and Robert
P. Hickey. (10) (15)
10.38 Employment Agreement dated May 30, 1996 between Registrant and Dr.
Herbert Moskowitz. (10) (15)
10.39 Lease Agreement dated August 13, 1996 between Registrant and Metro Four
Associates, LP, 8th Floor of 379 Thornall Street. (11)
<PAGE>
10.41 Option Agreement dated June 12, 1995 between Registrant and Eli Pines,
Ph.D. (12) (15)
10.42 Option Agreement dated July 17, 1995 between Registrant and Donald W.
Fallon. (12) (15)
10.46 Option Agreement dated August 6, 1996 between Registrant and Donald W.
Fallon. (12) (15)
10.47 Option Agreement dated August 6, 1996 between Registrant and Donald W.
Fallon. (12) (15)
10.48 Option Agreement dated August 15, 1996 between Registrant and Walter R.
Maupay. (12) (15)
10.49 Option Agreement dated March 5, 1997 between Registrant and Edward
A. Celano. (13) (15)
10.50 Amendment No. 3 dated as of October 1, 1996 to the Agreement
between the Registrant and Yissum. *
10.51 Option Agreement dated June 3, 1997 between Registrant and Joel L.
Gold. * (15)
10.52 Option Agreement dated June 3, 1997 between Registrant and Coy
Eklund. *(15)
10.53 Option Agreement dated June 3, 1997 between Registrant and Herbert
Moskowitz. * (15)
10.54 Option Agreement dated June 3, 1997 between Registrant and Irwin M.
Rosenthal. * (15)
10.55 Option Agreement dated June 17, 1997 between Registrant and Donald
W. Fallon. * (15)
10.56 Option Agreement dated June 17, 1997 between Registrant and Donald
W. Fallon. * (15)
10.57 Option Agreement dated June 17, 1997 between Registrant and Robert
P. Hickey. * (15)
10.58 Option Agreement dated June 17, 1997 between Registrant and Eli
Pines. * (15)
10.59 Option Agreement dated June 17, 1997 between Registrant and Eli
Pines. * (15)
10.60 Option Agreement dated June 17, 1997 between Registrant and Robert
P. Hickey. * (15)
10.61 Option Agreement dated June 17, 1997 between Registrant and Robert
P. Hickey. * (15)
10.62 Option Agreement dated June 17, 1997 between Registrant and Eli
Pines. * (15)
23.1 Consent of Richard A. Eisner & Company, LLP. *
27. Financial Data Schedule.*
* Filed herewith.
____________________
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-94008) declared effective on September 22, 1992.
(2) Incorporated by reference to Registrant's Registration Statement on Form S-
1 (File No. 333-02588) declared effective on May 3, 1996.
(3) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended September 30, 1992.
(4) Incorporated by reference to the Registrant's report on Form 10-K for the
year ended December 31, 1993.
(5) Incorporated by reference to the Registrant's report on Form 8-K filed by
the Company on August 12, 1994.
(6) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended September 30, 1994.
(7) Incorporated by reference to the Registrant's report on Form 10-K for the
year ended December 31, 1994.
(8) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended June 30, 1995.
(9) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended September 30, 1995.
(10) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended June 30, 1996.
(11) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended September 30, 1996.
(12) Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (File No. 333-19195) declared effective on January 3, 1997.
(13) Incorporated by reference to the Registrant's report on Form 10-K for the
year ended December 31, 1996.
(14) Incorporated by reference to the Registrant's report on Form 10-Q for the
quarter ended June 30, 1997.
(15) Includes compensatory plan and or arrangements required to be filed
pursuant to item 14 (c) of Form 10-K.
(b) REPORTS ON FORM 8-K
None
(c) See (a)3.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Life Medical Sciences, Inc.
(Registrant)
By: /s/ Robert P. Hickey
--------------------------------
Robert P. Hickey
Chief Executive Officer and President
(principal executive officer)
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- -----
<S> <C> <C>
/s/ Robert P. Hickey Director, President and March 27, 1998
- ------------------------------- Chief Executive Officer
ROBERT P. HICKEY (principal executive
officer)
/s/ Donald W. Fallon Vice President, Chief Financial Officer March 27, 1998
- ------------------------------- and Treasurer
DONALD W. FALLON (principal financial and
accounting officer)
/s/ Herbert Moskowitz Director and Chairman of March 27, 1998
- ------------------------------- the Board
HERBERT MOSKOWITZ
/s/ Coy Eklund Director March 27, 1998
- -------------------------------
COY EKLUND
/s/ Joel L. Gold Director March 27, 1998
- -------------------------------
JOEL L. GOLD
/s/ Irwin M. Rosenthal Director March 27, 1998
- -------------------------------
IRWIN M. ROSENTHAL
/s/ Walter R. Maupay Director March 27, 1998
- -------------------------------
WALTER R. MAUPAY
/s/ Edward A. Celano Director March 27, 1998
- -------------------------------
EDWARD A. CELANO
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
Number
------
<S> <C>
REPORT OF INDEPENDENT AUDITORS...................................... F-2
BALANCE SHEETS...................................................... F-3
STATEMENTS OF OPERATIONS............................................ F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY....................... F-5
STATEMENTS OF CASH FLOWS............................................ F-6
NOTES TO FINANCIAL STATEMENTS....................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Life Medical Sciences, Inc.
Edison, New Jersey
We have audited the accompanying balance sheets of Life Medical Sciences,
Inc. as of December 31, 1996 and 1997 and the related statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Life Medical Sciences, Inc. as
of December 31, 1996 and 1997 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 12, 1998
F-2
<PAGE>
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
December 31
1996 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 11,236 $ 2,733
Short-term investments.................................................... 3,042 4,306
Prepaid expenses and advances............................................. 311 90
---------- --------
Total current assets.................................................... 14,589 7,129
Long-term investments ...................................................... 530
Furniture and equipment-at cost (less depreciation of $60
and $58).................................................................. 183 114
Deposits.................................................................... 29 13
---------- --------
TOTAL.................................................................. $ 14,801 $ 7,786
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation.................................................. $ 7 $ 8
Accounts payable.......................................................... 111 294
Accrued expenses.......................................................... 350 852
---------- --------
Total current liabilities............................................... 468 1,154
Capital lease obligation.................................................... 34 26
Deferred royalty income..................................................... 505 441
---------- --------
Total liabilities....................................................... 1,007 1,621
---------- --------
Commitments and other matters
Stockholders' equity :
Preferred stock, $.01 par value; shares authorized-5,000;
none issued..............................................................
Common stock, $.001 par value; shares authorized - 23,750;
issued and outstanding - 7,915 and 7,923................................. 8 8
Additional paid-in capital................................................ 33,951 33,988
Accumulated deficit....................................................... (20,165) (27,831)
---------- --------
Total stockholders' equity.............................................. 13,794 6,165
---------- --------
TOTAL.................................................................. $ 14,801 $ 7,786
========== ========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
<S> <C> <C> <C>
Revenues:
Royalty income........................ $ 245 $ 155 $ 64
------- ------- -------
Operating expenses:
Research and development expenses..... 1,994 2,779 6,271
General and administrative expenses... 1,231 1,743 2,012
------- ------- -------
Operating expenses................ 3,225 4,522 8,283
------- ------- -------
(Loss) from operations................. (2,980) (4,367) (8,219)
Interest income........................ 183 540 557
Interest expense....................... ( 3) ( 4)
------- ------- -------
Net (loss) $(2,797) $(3,830) $(7,666)
======= ======= =======
Net (loss) per share -basic & diluted.. $(0.58) $(0.55) $(0.97)
======= ======= =======
Weighted average shares outstanding.... 4,820 6,976 7,919
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance - January 1, 1995................................... 4,309 $4 $15,771 $(13,538)
Common stock issued................................. 1,093 1 3,603
Fair value of common stock issued for compensation.. 20 56
Net (loss) for the year............................. (2,797)
-------- ----- -------- --------
Balance - December 31, 1995................................. 5,422 5 19,430 (16,335)
Common stock issued (net of expenses)............... 2,493 3 14,065
Fair value of options issued for compensation....... 456
Net (loss) for the year............................. (3,830)
-------- ----- -------- --------
Balance - December 31, 1996................................. 7,915 8 33,951 (20,165)
Common stock issued................................. 8 37
Net (loss) for the year............................. ( 7,666)
--------- ------ -------- --------
Balance - December 31, 1997................................. 7,923 $8 $33,988 $(27,831)
===== == ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
( IN THOUSANDS )
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)......................................................... ($2,797) $(3,830) $ (7,666)
Adjustments to reconcile net (loss) to net cash (used in)
operations:
Deferred royalty income........................................ (139) (64)
Fair value of common stock and options issued as
compensation.................................................. 56 456
Depreciation.................................................... 27 33 37
Changes in operating assets and liabilities:
Decrease in accounts receivable.............................. 58
Decrease (increase) in prepaid expenses and
advances................................................... 74 (292) 221
Decrease (increase)in deposits............................... 1 (8) 16
(Decrease) increase in accounts payable and
accrued expenses............................................ (150) 272 685
(Decrease) in other liabilities.............................. (15)
-------- ------- --------
Net cash (used in) operating activities................... (2,731) (3,523) (6,771)
-------- ------- --------
Cash flows from investing activities:
Purchase of equipment............................................ (26) (93) (36)
Disposition of equipment......................................... 2 16 68
Purchase of investment securities................................ (7,042) (9,627)
Proceeds from maturity of investment securities.................. 4,000 7,833
Net proceeds from the sale of the Sure-Closure System............ 1,000
-------- ------- --------
Net cash provided by (used in) investing activities......... 976 (3,119) ( 1,762)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of expenses.......... 3,604 14,068 37
Payment on capitalized lease..................................... (18) (7)
-------- ------- --------
Net cash provided by (used in) financing activities........ 3,604 14,050 30
-------- ------- --------
Net increase (decrease) in cash and cash equivalents................ 1,849 7,408 (8,503)
Cash and cash equivalents at beginning of year...................... 1,979 3,828 11,236
-------- ------- --------
Cash and cash equivalents at end of year............................ $ 3,828 $11,236 $ 2,733
======== ======= ========
Supplementary cash flow information:
Interest paid.................................................... $ 3 $ 4
Equipment purchased under capital lease.......................... $ 18 41
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A)-- The Company:
Life Medical Sciences, Inc. (the "Company") was incorporated on August 1,
1990. The Company is engaged in the development of cost-effective medical
products. The Company is developing Repel and Repel-CV, its resorbable adhesion
barrier films used to prevent surgical adhesions; Resolve and Revisc, its
resorbable adhesion barrier coating used to prevent surgical adhesions; and the
Clinicel line of scar treatment products. In September 1993, the Company
commercially introduced its first product, the Sure-Closure System, a device
designed for the mechanical closure of tissue deficit wounds. On July 29, 1994,
the Company sold or assigned to MedChem Products, Inc. ("MedChem") substantially
all of its assets related to the Sure-Closure System, including rights,
agreements and licenses. During 1997, the Company began to commercially
introduce its second product Clinicel, a device designed to alleviate the
discomfort of and improve the physical appearance of hypertrophic and keloid
scars.
(NOTE B) --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Cash equivalents:
The Company considers all highly liquid investment instruments purchased with
a maturity of three months or less to be cash equivalents.
[2] Investments:
Investments purchased with a maturity of more than three months, and which
mature less than twelve months from the balance sheet date, are classified as
short-term investments. Long-term investments are those with maturities greater
than twelve months from the balance sheet date. The Company generally holds
investments to maturity, however, since the Company may, from time to time, sell
securities to meet cash requirements, the Company classifies its investments as
available-for-sale as defined by Statement of Financial Accounting Standard
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Available-for-sale securities are carried at market value with
unrealized gains and losses reported as a separate component of stockholders'
equity. Gross realized gains and losses on the sales of investment securities
are determined on the specific identification method.
[3] Depreciation:
Furniture and equipment are recorded at cost, and are depreciated using the
straight-line method based upon estimated useful lives of 5 to 7 years.
[4] Research and development:
Research and development costs, including those payments described in Note G,
are charged to expense as incurred.
[5] Patent costs:
Costs incurred in connection with acquiring patent rights are charged to
expense as incurred.
[6] Royalty income:
Royalty income is based on the quarterly sales of the Sure-Closure System and
any line extensions or embodiments thereof. Royalties are calculated and paid
or credited to the Company within forty-five days after the last day of each
quarter. The Company recognizes such income when the amounts earned become fixed
and determinable.
Beginning with the royalties on sales for the fourth quarter of 1995, the
amounts payable to the Company are applied to the outstanding deferred royalty
income balance.
F-7
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
[7] Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
[8] Stock based compensation:
The Company accounts for stock-based employee compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. Effective January 1, 1996, the Company adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation".
[9] Income taxes:
The Company accounts for income taxes using the liability method as
prescribed by SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits which are not expected to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.
[10] Loss per share:
The Company calculates its loss per share under the provisions of SFAS No.
128, "Earnings Per Share". SFAS No. 128 requires a dual presentation of "basic"
and "diluted" loss per share on the face of the statements of operations. Basic
loss per share is computed by dividing the loss by the weighted average number
of shares of common stock outstanding during each period. Diluted loss per
share includes the effect, if any, from the potential exercise or conversion of
securities, such as stock options and warrants, which would result in the
issuance of incremental shares of common stock. However, such potential common
shares (see Note E) have not been included in the calculation of diluted loss
per share since the affect would be anti-dilutive.
[11] New pronouncement:
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income" in June 1997. The Company believes the presentation of
comprehensive income and its components does not differ significantly from the
results currently reported.
F-8
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(NOTE C) --INVESTMENTS:
At December 31, 1997, investments consist of commercial paper, Treasury bills
and other obligations of governmental agencies, which are held as available-for-
sale securities. Investments are presented at amortized cost which is
approximately equal to fair value at December 31, 1996 and 1997. The Company's
long term investments at December 31, 1997 are not expected to be held until
maturity since such investments have a maturity exceeding 25 years.
(NOTE D) - ACCRUED EXPENSES:
Accrued expenses is comprised of the following (in thousands):
December 31,
------------
1996 1997
---- ----
Research agreements........................ $ 249 $ 726
Other...................................... 101 126
----- -----
Total...................................... $ 350 $ 852
===== =====
(NOTE E) -- Stockholders' Equity:
[1] Common stock:
In March 1995, the Company issued 20,000 shares of Common Stock to a financial
consultant for advisory services to be performed over the following twelve month
period. The fair market value of the Common Stock on the date of the agreement
was $56,000 and was amortized to consulting expense over the twelve month
period.
In April 1995, the Company sold 909,000 shares of Common Stock at $2.75 per
share in a private placement to unrelated third parties resulting in proceeds to
the Company of $2,500,000.
In May 1996, the Company completed a public offering of 2,300,000 shares of
common stock at $6.625 per share (initial offering of 2,000,000 shares plus an
additional 300,000 issued due to the exercise of the underwriters' over-
allotment option) and received net proceeds of approximately $13.4 million,
including proceeds received upon the exercise of the underwriters' over-
allotment option and after deducting underwriting discounts and commissions and
offering expenses. The Company intends to continue to use these proceeds to
fund continued clinical trials, research and development and for general
corporate purposes.
F-9
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
[2] Warrants:
In 1992, the Company consummated its initial public offering of 1,150,000
units, each unit consisting of one share of common stock and two warrants. The
warrants included in each unit consist of a redeemable Class A Warrant and a
redeemable Class B Warrant. Each Class A Warrant entitles the holder to
purchase, at an exercise price of $8.40, subject to adjustment, 1.071474 shares
of Common Stock and one Class B Warrant. Each Class B Warrant entitles the
holder to purchase, at an exercise price of $12.60, subject to adjustment,
1.071474 shares of Common Stock. The warrants are redeemable by the Company for
$.05 per warrant on 30 days written notice under certain circumstances.
In 1993, the Company consummated a public offering of 500,000 units, each
unit consisting of two shares of common stock and one Class A Warrant.
At December 31, 1997 there were 1,650,000 Class A Warrants and 1,150,000
Class B Warrants outstanding. The warrants expire on September 21, 1998.
The Company sold to the underwriter of its public offering in May 1996, for
nominal consideration, a warrant to purchase 200,000 shares of Common Stock. The
warrant has an exercise price of $7.95 per share and is exercisable for a period
of five years commencing May 3, 1998.
[3] Options:
The Company may issue options to purchase up to an aggregate of 1,407,500
shares of Common Stock pursuant to its 1992 Stock Option Plan, as amended (the
"Plan"). Options to purchase shares may be granted under the Plan to persons
who, in the case of incentive stock options, are employees of the Company; or,
in the case of SARs and nonstatutory stock options, are officers and key
employees of the Company, or agents, medical and scientific advisors, directors
of or consultants to the Company, whether or not otherwise employed by the
Company. The exercise price is determined by the Stock Option Committee of the
Board of Directors at the time of the granting of an option, but in the case of
an incentive stock option, the exercise price shall not be less than the fair
market value of the stock on the date of grant. Options and SARs vest over a
period not greater than five years, and expire no later than ten years from the
date of grant.
Options to purchase up to 1,150,000 shares of Common Stock pursuant to the
Plan are outstanding as of December 31, 1997. In addition to the shares of
Common Stock reserved for issuance pursuant to the Plan, the Company has
reserved 725,000 shares of Common Stock for issuance upon exercise of
outstanding options pursuant to other agreements. These options vest over
various periods, not exceeding three years from the date of grant, and expire no
later than five years from the date of vesting.
F-10
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting
for its options to employees. Although no compensation cost has been recognized
for its stock option grants to employees, the Company has included stock based
compensation costs associated with options granted under consulting agreements
in research and development expenses and general and administrative expenses of
$435,000 and $21,000, respectively for 1996. Had compensation cost for the
Company's stock option grants to employees been determined based on the fair
value at the grant dates for awards consistent with the method of FASB Statement
123, the Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below (in thousands, except per share data).
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net loss As reported $(2,797) $(3,830) $(7,666)
Pro forma $(3,453) $(4,329) $(8,992)
Net loss per share-
basic & diluted As reported $ (0.58) $ (0.55) $ (0.97)
Pro forma $ (0.72) $ (0.62) $ (1.14)
</TABLE>
A summary of the status of the Company's stock options as of December 31,
1995, 1996 and 1997, and changes during the years ended on those dates is
presented below (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------- ------------------------- ------------------------
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------- ------ -------------- ------ ---------------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 873 $6.51 1,028 $5.65 1,459 $6.90
Granted 478 4.76 625 8.01 1,025 4.53
Exercised (184) 6.05 (193) 3.85 (8) 2.50
Forfeited (139) 7.49 (1) 6.00 (602) 7.29
Outstanding at end
of year 1,028 5.65 1,459 6.90 1,874 5.50
Options
exercisable at 939 5.49 926 6.35 1,299 5.64
year-end
Weighted-average
fair value of
options granted 2.31 4.09 2.13
during the year.
</TABLE>
F-11
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes information about fixed stock options outstanding
at December 31, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ----------------------------------------
Number Weighted-Average Number
Range Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- ----------------- ---------------- --------------------- --------------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
$2.00-$4.00 719 4 Years $3.58 434 $3.32
$4.13-$6.88 670 4 Years $5.35 487 $5.43
$7.00-$9.25 485 4 Years $8.53 378 $8.58
----- ------- ----- --- -----
1,874 4 Years $5.50 1,299 $5.64
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997: no dividend yield, expected
volatility of 76%, a risk-free interest rate of 6.0% and an expected life of 2.5
to 3.3 years.
(NOTE F)-- INCOME TAXES:
At December 31, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $ 25,409,000 and approximately $ 302,000 of
research and development tax credits available to offset future federal income
tax, subject to limitations for alternative minimum tax. The net operating loss
carryforwards and the research and development credit carryover are subject to
examination by the tax authorities and expire in various years from 2005 through
2012. Under Section 382 of the Internal Revenue Code of 1986, as amended, the
Company is subject to an annual limitation on the utilization of its net
operating loss carryforwards and research and development tax credit carryovers
because an ownership change of more than 50% has occurred. Certain other
limitations may apply. The Company believes that the current annual limitation
will not have a material adverse impact on the utilization of its net operating
loss carryforwards and research and development carryover. The next significant
issuance of the Company's stock, however, will likely result in a new annual
limitation which may impact the utilization of a portion thereof.
The Company has not recorded a benefit from its net operating loss
carryforwards, research and development tax credit carryover or temporary
differences (primarily due to certain operating expenses which were capitalized
as start-up costs for income tax purposes and research and development equipment
charged to operations which were capitalized for income tax purposes), because a
valuation allowance, which increased by approximately $2,408,000 in 1997, has
been provided for the deferred tax asset otherwise recorded. The valuation
allowance has been provided due to management's uncertainty regarding the future
profitability of the Company.
F-12
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(NOTE G)-- RESEARCH AND LICENSE AGREEMENTS:
[1] Yissum agreement:
During June 1991, the Company entered into a research and license agreement
with Yissum Research and Development Company of the Hebrew University of
Jerusalem ("Yissum"), which was amended in February 1994, as of January 1996 and
as of October 1996, pursuant to which the Company finances and Yissum conducts
research and development at the Hebrew University of Jerusalem in the field of
biomedical polymers. In connection with the agreement, Yissum assigned to the
Company its worldwide rights to patents, patent applications and know-how to
develop, manufacture and market products relating to this technology.
Pursuant to the agreement, the Company is obligated to pay a royalty of five
percent of all net sales of the Company's products derived under the agreement.
The maximum amount of royalties to be paid during the term of the agreement is
$5,500,000. The agreement continues until the earlier of the last date upon
which the patents expire, or at the end of fifteen years from the date of the
first commercial sale pursuant to the assignment. Yissum has the right in its
sole discretion to terminate the agreement if, among other things the Company
does not attain certain milestones by specified dates. The January 1996
amendment gives the Company options for three one-year extensions of the periods
in which certain milestones must be attained, each for a payment of $50,000.
Upon termination of the agreement for any reason, the patents, patent
applications and know-how assigned by Yissum to the Company will revert in full
to Yissum.
The October 1996 amendment provides a research term of five years from the
date of the amendment and required Yissum personnel to enter into
confidentiality and non-competition agreements with the Company. During 1997,
approximately $ 276,000 of research funding was provided to Yissum and was
charged to research and development expense. The proposed budget for the twelve
month period beginning October 1, 1997 is approximately $270,000.
[2] Dimotech agreement:
During July 1995, the Company entered into an agreement with Dimotech,
pursuant to which the Company financed and Dimotech conducted research and
development with regard to the scar management program. In connection with the
agreement, Dimotech has assigned to the Company its worldwide rights to the
patents and know-how to develop, manufacture and market products relating to
this technology.
Pursuant to the agreement, the Company is obligated to pay a royalty of five
percent of all net sales of the Company's products derived under this agreement.
The agreement continues until the earlier of the last date upon which the
patents expire, or at the end of fifteen years from the date of the first
commercial sale pursuant to the assignment. Dimotech has the right in its sole
discretion to terminate the agreement under certain circumstances. Upon
termination of the agreement for any reason, the patents, license and know-how
assigned by Dimotech to the Company will revert in full to Dimotech.
F-13
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
[3] Technion agreements:
During June 1991, the Company entered into an agreement with Technion
Research and Development Foundation, Ltd., in Haifa, Israel (the "Technion"),
which was assigned to its wholly-owned subsidiary Dimotech, Ltd. ("Dimotech")
and was amended in February 1994 and February 1996, pursuant to which the
Company finances, and Dimotech conducts research and development, with regard to
the Company's in-situ tissue culturing technology. In connection with the
agreement, the Technion has assigned to the Company its worldwide rights to
patent applications, any patents which may be issued and know-how to develop,
manufacture and market products relating to this technology.
In December 1993, the Company issued an option to Dimotech to purchase
200,000 shares of common stock at an exercise price of $9.12 and expires at
various dates through December 2000.
Pursuant to the agreement, the Company is obligated to pay a royalty of
five percent of all net sales of the Company's products derived under the
agreement. The maximum amount of royalties to be paid during the term of the
agreement is $5,500,000. The agreement continues until the earlier of the last
date upon which the patents expire, or at the end of fifteen years from the date
of the first commercial sale pursuant to the assignment. Dimotech has the right
in its sole discretion to terminate the agreement under certain circumstances.
Upon termination of the agreement for any reason, the patents, patent
applications and know-how assigned by Dimotech to the Company will revert in
full to Dimotech.
During 1997, the Company terminated its clinical development efforts on the
proposed products utilizing its in-situ tissue culturing technology since they
did not yield the desired benefits to the intended user during clinical
evaluation.
(NOTE H)-- COMMITMENTS AND OTHER MATTERS:
[1] Leases:
The Company entered into an operating lease for its corporate offices in
November 1996 for approximately 3,550 square feet at an annual fixed rent of
$80,000. The initial term of this lease is for five years and includes one
five-year renewal option.
The lease provides for future aggregate minimum annual rentals, as of
December 31, 1997, as follows (in thousands):
1998.................. $80
1999.................. $80
2000.................. $80
2001.................. $67
The terms of the lease includes escalation for increases in real estate taxes
and certain operating expenses.
Previously, the Company entered into an operating lease for its corporate
offices in May 1992 which was amended in October 1993. In September 1994, the
Company sublet this space for the period through July 1996 to MedChem. In
August 1996, the Company sublet this space through July 1997, when the lease
expired.
Rent expense was $58,000, $56,000 and $84,000 for the years ended December
31, 1995, 1996 and 1997, respectively.
F-14
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
[2] Employment agreements:
The Company has employment agreements with six executives which expire at
various dates from 1998 through 2001. Pursuant to such agreements, the Company's
commitments regarding termination benefits aggregates $298,000 at December 31,
1997.
[3] Limited suppliers:
The Company intends to rely primarily on certain manufacturers to produce its
proposed products for testing purposes and, if applicable, commercial
production. Such manufacturers rely on various sources, approved by the
Company, for its supply of raw materials and components. Although there are a
limited number of such entities, the Company believes that alternative
manufacturers and sources of raw materials and components are available. There
can be no assurance, however, that the Company will be able to enter into
agreements with such alternative sources at acceptable terms, if at all.
[4] Other:
In connection with an agreement with the Technion and Dimotech, which was
assigned to MedChem in July 1994, the Company must invest $50,000 per year, for
the five-year period ending December 31, 1999, in research and development
programs in Israel if MedChem does not make such investments. The agreement also
provides for a two percent royalty on sales of the Sure-Closure System to be
paid to the Chief Scientist in Israel. In the event that MedChem does not pay
these royalties the Company may be obligated to make such payments. In addition,
the agreement contains certain commitments to manufacture in Israel, which if
not met could result in the loss of technology and future royalty income.
(NOTE I)-- SURE-CLOSURE SYSTEM SALE:
In July 1994, the Company sold or assigned to MedChem substantially all of
its assets related to the Sure-Closure System, including rights, agreements and
licenses. The terms of the asset purchase agreement provide that the Company is
entitled to royalties of 10% of the net sales (as defined in the agreement),
through June 30, 2004, of the Sure-Closure System and any line extensions or
future embodiments. In connection with this transaction, $644,000 was recorded
as deferred royalty income and has been reduced by $203,000 of royalties earned
after October 1, 1995.
A number of the Company's agreements with the Technion and Dimotech, related
to the Sure-Closure System, were assigned to MedChem in connection with the
sale.
(NOTE J)-- Related Party:
The Company incurred expenses of approximately $92,000, $402,000 and $189,000
in the years ended December 31, 1995, 1996 and 1997, respectively, for legal
services rendered by a firm at which one of the partners is a director and a
principal stockholder of the Company.
In February 1997, the Company entered into a consulting agreement with an
investment banking firm to provide certain advisory services to the Company.
Prior to terminating that agreement, the Company paid a fee of $27,000. A
director of the Company was an executive vice president of that investment
banking firm.
F-15
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(NOTE K)-- 401(K) PLAN:
Effective October 1992, the Company adopted a 401(k) pension plan available
to all full time eligible employees. The Company at its discretion may make
contributions to the plan. However, no such contributions have been made through
December 31, 1997.
F-16
<PAGE>
AMENDMENT NO. 3 dated as of this 1st day of October, 1996 ("Amendment No.
3") between LIFE MEDICAL SCIENCES, INC. (the "Company") (formerly "BIOMEDICAL
POLYMERS INTERNATIONAL, LTD.") and YISSUM RESEARCH DEVELOPMENT COMPANY OF THE
HEBREW UNIVERSITY OF JERUSALEM ("Yissum").
W I T N E S S E T H:
-------------------
WHEREAS, the parties have entered into an agreement dated June 14,
1991 (the "1991 Agreement"), which 1991 Agreement was amended pursuant to (i) an
amendment dated as of February __, 1994 ("Amendment No. 1") and (ii) an
amendment dated as of January 1, 1996 ("Amendment No. 2") (the 1991 Agreement as
amended by Amendment No. 1 and Amendment No. 2 is referred to herein as the
"Original Agreement"); and
WHEREAS, the parties wish to modify and amend the Original Agreement
upon the terms, provisions and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree as follows:
1. Section 18 of the Original Agreement is hereby amended to provide
that the address at which the Company shall receive all notices and
communications shall be 379 Thornall Street, Edison, New Jersey 08837-2227,
Attention: Robert Hickey, Chief Executive Officer and President.
2. Paragraph 7 of Amendment No. 2 is hereby amended by deleting the
entire Paragraph 7 except for the first sentence and substituting the following
in place thereof immediately following the first sentence:
"The term of Research Program III shall be for a period of five (5)
years from the date of Amendment No. 3 and may be extended as provided
for in Sections 2(c), (d) and (e) of the Original Agreement and shall
be subject to the requirements as provided in Sections 2(f) and (g) of
the Original Agreement. In consideration of the foregoing, in
addition to the $60,000 previously paid by the Company to Yissum in
connection with Research Program III, the Company shall pay to Yissum
the amounts set forth in the Budget (as hereinafter defined) for
Research Program III. The Company may terminate Research Program III
on one hundred twenty (120) days' prior written notice. In the event
that the Company terminates Research Program III, such termination
shall not be deemed to be a termination of the Original Agreement but
only a termination of Research Program III."
<PAGE>
3. Commencing on the date hereof, and continuing throughout the term
of Research Program III, the Company shall provide to Yissum an operating budget
(the "Budget") setting forth among other items, the amount, which amount shall
be determined by the Company in its sole discretion, to be made available to
Yissum for the next ensuing twelve (12) month period for Research Program III.
Attached hereto and made a part of appendix "A" to the Original Agreement is a
Budget for the twelve (12) month period commencing on the date hereof. Not less
than ninety (90) days prior to the commencement of each twelve (12) month period
thereafter, the Company shall deliver to Yissum a Budget for the next ensuing
twelve (12) month period. In the event the Company shall fail to deliver a
Budget prior to the commencement of the twelve (12) month period for which a
Budget is required, the Budget for the preceding year shall continue to govern
until a new Budget is provided.
4. The following new Section 17(f) is hereby added to the Original
Agreement:
"17.(f) (i) Yissum covenants and agrees to: (A) execute and be bound
by all of the terms and conditions of the Confidentiality and Non-Competition
Undertakings to the Company set forth in and attached hereto as Exhibit A and
made a part hereof ("Exhibit A") including, without limitation, maintaining the
Confidential Information (as defined in Exhibit A) in strict confidence during
and after the term of the Original Agreement and refraining from engaging in
competitive activities during the term of the Original Agreement and for a
period of two (2) years thereafter; (B) require its employees, consultants,
subcontractors, agents and representatives to execute and be bound by all of the
terms and conditions of the Confidentiality and Non-Competition Undertakings to
the Company set forth in and attached hereto as Exhibit B and made a part
hereof; and (C) require the employees, consultants, subcontractors, agents and
representatives of the University to execute and be bound by all of the terms
and conditions of the Confidentiality and Non-Competition Undertakings to Yissum
set forth in and attached hereto as Exhibit C and made a part hereof; (ii)
Yissum covenants and agrees to take all necessary measures and actions
including, without limitation, resorting to all legal measures, at Yissum's sole
cost and expense, to avoid a breach of and/or subsequent and/or continuing
breaches of any of the terms and conditions of any of the Confidentiality and
Non-Competition Undertakings set forth in Exhibits A, B and C which are attached
hereto and made a part hereof. In the event Yissum fails to take such measures
and actions, such failure shall be a fundamental breach of the terms of the
Original Agreement; (iii) the provisions of this Section 17(f) shall survive the
termination or expiration of the Original Agreement for any reason whatsoever;
and (iv) the provisions of this Section 17(f) shall be subject to the provisions
of Section 12 with respect to publications."
5. All terms used herein but not otherwise defined
<PAGE>
herein shall have the same meaning ascribed to such term in the Original
Agreement.
6. Amendment No. 3 may be executed in counterparts each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. From and after the execution and delivery of Amendment No.
3, the term "Original Agreement" shall be deemed to include the terms and
provisions of Amendment No. 3.
7. By executing Amendment No. 3, Yissum and the Company hereby
certify that any and all necessary approvals and consents for the effectiveness
of Amendment No. 3 have been obtained.
8. Yissum and the Company further acknowledge that as of the date of
execution of Amendment No. 3 and all attachments thereto, the Original
Agreement, as amended by Amendment No. 3, is in full force and effect,
including, but not limited to Research Program III, with no current or
anticipated events of default.
IN WITNESS WHEREOF, the parties have duly executed Amendment No. 3 as
of the day and year first above written.
Yissum Research and Development Life Medical Sciences, Inc.
Company of the Hebrew
University of Jerusalem
By: ___________________________________ By: ________________________________
Name: Name:
Title: Title:
3
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the
date set forth next to each such amount on the signature page
to this Agreement (the "Expiration Date"), subject to earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the
Optionee ceases to perform services for the Company, the
Option shall terminate on the earlier of the last day of the
third month or ninety days after the date such Optionee ceases
to perform services for the Company, or on the date on which
the Option expires by its terms, whichever occurs first.
(iii) If such termination to perform services is because of
dismissal for cause or because the Optionee is in breach of
any employment agreement, such Option will terminate on the
date the Optionee ceases to perform services for the Company.
(iv) If such termination to perform services is because the
Optionee has become permanently disabled (within the meaning
of Section 22(e)(3) of the Code), such Option shall terminate
on the last day of the twelfth month from the date such
Optionee ceases to perform services for the Company, or on the
date on which the Option expires by its terms, whichever
occurs first.
(v) In the event of the death of the Optionee, the Option granted
to such Optionee shall terminate on the last day of the
twelfth month from the date of death, or on the date on which
the Option expires by its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only
to the extent that the right to purchase Shares under such
Option has accrued and is in effect on the date such Optionee
ceases to perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full
-2-
<PAGE>
number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered
thereby whether or not under the provisions of Section 3
hereof the Optionee was entitled to do so at the date of his
or her death, by the estate of such Optionee, or by any person
or persons who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of such
Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued
and is in effect, the Option may be exercised in full or in part
by giving written notice to the Company stating the number of
Shares as to which the Option is being exercised and accompanied
by payment in full for such Shares. No partial exercise may be
made for less than one hundred (100) full Shares of Common
Stock. Payment shall be made in accordance with the terms of the
Plan. Upon such exercise, delivery of a certificate for paid-up,
non-assessable Shares shall be made at the principal office of
the Company to the person exercising the Option, not less than
thirty (30) and not more than ninety (90) days from the date of
receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its Common
Stock as will be sufficient to satisfy the requirements of the
Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee otherwise than by will or the laws or
descent and distribution or pursuant to a domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option
-3-
<PAGE>
shall give a written representation to the Company in the form attached hereto
as Exhibit 1 and the Company shall place an "investment legend", so-called, as
described in Exhibit 1, upon any certificate for the Shares issued by reason of
such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to
any Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, and the Optionee has hereunto set his or her hand, all as of the 3rd
day of June, 1997.
LIFE MEDICAL SCIENCES, INC.
By: ____________________________________________
Title:
OPTIONEE
Print Name: Joel Gold
Sign Name:______________________________________
Address:________________________________________
________________________________________________
Social Security Number:_________________________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 50,000
------
PURCHASE PRICE PER SHARE: $ 4.75
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 18, 1997 50,000 June 18, 2002
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant
to the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current
public information with respect to the Company being available and, at the time
that I may desire to make a sale pursuant to the Rule, the Company may neither
wish nor be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective
registration statement under such Act, or an opinion of counsel, which
opinion is reasonably satisfactory to counsel to the Company, to the
effect that registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with
its transfer agent, prohibiting the transfer of the Shares, so long as the
legend remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
-----------------------------------------------
(Signature)
-----------------------------------------------
(Print Name)
-----------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date
set forth next to each such amount on the signature page to this
Agreement (the "Expiration Date"), subject to earlier termination as
herein provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall
terminate on the earlier of the last day of the third month or ninety
days after the date such Optionee ceases to perform services for the
Company, or on the date on which the Option expires by its terms,
whichever occurs first.
(iii) If such termination to perform services is because of dismissal
for cause or because the Optionee is in breach of any employment
agreement, such Option will terminate on the date the Optionee ceases
to perform services for the Company.
(iv) If such termination to perform services is because the Optionee
has become permanently disabled (within the meaning of Section
22(e)(3) of the Code), such Option shall terminate on the last day of
the twelfth month from the date such Optionee ceases to perform
services for the Company, or on the date on which the Option expires
by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted to
such Optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the Option expires by
its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only to the
extent that the right to purchase Shares under such Option has
accrued and is in effect on the date such Optionee ceases to perform
services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the meaning
of Section 22(e)(3) of the Code), the Option shall be exercisable to
the full
-2-
<PAGE>
number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee
was entitled to do so at the date of his or her death, by the estate
of such Optionee, or by any person or persons who acquired the right
to exercise such Option by bequest or inheritance or by reason of the
death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and
is in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares as to which
the Option is being exercised and accompanied by payment in full for such
Shares. No partial exercise may be made for less than one hundred (100)
full Shares of Common Stock. Payment shall be made in accordance with the
terms of the Plan. Upon such exercise, delivery of a certificate for
paid-up, non-assessable Shares shall be made at the principal office of
the Company to the person exercising the Option, not less than thirty
(30) and not more than ninety (90) days from the date of receipt of the
notice by the Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise of
the Option shall not be effectively registered under the Securities Act of 1933
(" 1933 Act"), upon any date on which the Option is exercised in whole or in
part, the person exercising the Option
-3-
<PAGE>
shall give a written representation to the Company in the form attached hereto
as Exhibit 1 and the Company shall place an "investment legend", so-called, as
described in Exhibit 1, upon any certificate for the Shares issued by reason of
such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 3rd day of
June, 1997 .
LIFE MEDICAL SCIENCES, INC.
By:----------------------------------------------
Title:
OPTIONEE
Print Name: Coy Eklund
Sign Name:--------------------------------------
Address:----------------------------------------
________________________________________________
Social Security Number:-------------------------
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 50,000
------
PURCHASE PRICE PER SHARE: $ 4.75
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 18, 1997 50,000 June 18, 2002
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and were acquired by the registered
holder pursuant to a representation and warranty that such holder was
acquiring the Shares for his own account and for investment, with no intention
of transfer or disposition of the same in violation of the registration
requirements of that Act. These securities may not be sold, pledged, or
transferred in the absence of an effective registration statement under such
Act, or an opinion of counsel, which opinion is reasonably satisfactory to
counsel to the Company, to the effect that registration is not required under
such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
-------------------------------------------------
(Signature)
-------------------------------------------------
(Print Name)
-------------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date set
forth next to each such amount on the signature page to this Agreement
(the "Expiration Date"), subject to earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall terminate on
the earlier of the last day of the third month or ninety days after the
date such Optionee ceases to perform services for the Company, or on the
date on which the Option expires by its terms, whichever occurs first.
(iii) If such termination to perform services is because of dismissal for
cause or because the Optionee is in breach of any employment agreement,
such Option will terminate on the date the Optionee ceases to perform
services for the Company.
(iv) If such termination to perform services is because the Optionee has
become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the last day of the twelfth month
from the date such Optionee ceases to perform services for the Company, or
on the date on which the Option expires by its terms, whichever occurs
first.
(v) In the event of the death of the Optionee, the Option granted to such
Optionee shall terminate on the last day of the twelfth month from the
date of death, or on the date on which the Option expires by its terms,
whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform services
for the Company, the Option shall be exercisable only to the extent that
the right to purchase Shares under such Option has accrued and is in
effect on the date such Optionee ceases to perform services for the
Company.
(ii) If the Optionee ceases to perform services for the Company because
he or she has become permanently disabled (within the meaning of Section
22(e)(3) of the Code), the Option shall be exercisable to the full
-2-
<PAGE>
number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee
was entitled to do so at the date of his or her death, by the estate of
such Optionee, or by any person or persons who acquired the right to
exercise such Option by bequest or inheritance or by reason of the
death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares as to which the Option
is being exercised and accompanied by payment in full for such Shares. No
partial exercise may be made for less than one hundred (100) full Shares of
Common Stock. Payment shall be made in accordance with the terms of the
Plan. Upon such exercise, delivery of a certificate for paid-up, non-
assessable Shares shall be made at the principal office of the Company to
the person exercising the Option, not less than thirty (30) and not more
than ninety (90) days from the date of receipt of the notice by the
Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise of
the Option shall not be effectively registered under the Securities Act of 1933
(" 1933 Act"), upon any date on which the Option is exercised in whole or in
part, the person exercising the Option
-3-
<PAGE>
shall give a written representation to the Company in the form attached hereto
as Exhibit 1 and the Company shall place an "investment legend", so-called, as
described in Exhibit 1, upon any certificate for the Shares issued by reason of
such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, and the Optionee has hereunto set his or her hand, all as of the 3rd
day of June, 1997 .
LIFE MEDICAL SCIENCES, INC.
By:-------------------------------------------
Title:
OPTIONEE
Print Name: Dr. Herbert Moskowitz
Sign Name:------------------------------------
Address:--------------------------------------
Social Security Number:_______________________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 50,000
------
PURCHASE PRICE PER SHARE: $ 4.75
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 18, 1997 50,000 June 18, 2002
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name)
----------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the
date set forth next to each such amount on the signature page to
this Agreement (the "Expiration Date"), subject to earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the
Optionee ceases to perform services for the Company, the Option
shall terminate on the earlier of the last day of the third
month or ninety days after the date such Optionee ceases to
perform services for the Company, or on the date on which the
Option expires by its terms, whichever occurs first.
(iii) If such termination to perform services is because of
dismissal for cause or because the Optionee is in breach of any
employment agreement, such Option will terminate on the date the
Optionee ceases to perform services for the Company.
(iv) If such termination to perform services is because the
Optionee has become permanently disabled (within the meaning of
Section 22(e)(3) of the Code), such Option shall terminate on
the last day of the twelfth month from the date such Optionee
ceases to perform services for the Company, or on the date on
which the Option expires by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option
granted to such Optionee shall terminate on the last day of the
twelfth month from the date of death, or on the date on which
the Option expires by its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only
to the extent that the right to purchase Shares under such
Option has accrued and is in effect on the date such Optionee
ceases to perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full
-2-
<PAGE>
number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may
be exercised with respect to the full number of Shares covered
thereby whether or not under the provisions of Section 3 hereof
the Optionee was entitled to do so at the date of his or her
death, by the estate of such Optionee, or by any person or
persons who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of such
Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares as to which the Option
is being exercised and accompanied by payment in full for such Shares. No
partial exercise may be made for less than one hundred (100) full Shares of
Common Stock. Payment shall be made in accordance with the terms of the
Plan. Upon such exercise, delivery of a certificate for paid-up, non-
assessable Shares shall be made at the principal office of the Company to
the person exercising the Option, not less than thirty (30) and not more
than ninety (90) days from the date of receipt of the notice by the
Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise of
the Option shall not be effectively registered under the Securities Act of 1933
(" 1933 Act"), upon any date on which the Option is exercised in whole or in
part, the person exercising the Option
-3-
<PAGE>
shall give a written representation to the Company in the form attached hereto
as Exhibit 1 and the Company shall place an "investment legend", so-called, as
described in Exhibit 1, upon any certificate for the Shares issued by reason of
such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 3rd day of
June, 1997.
LIFE MEDICAL SCIENCES, INC.
By:--------------------------------------------
Title:
OPTIONEE
Print Name: Irwin M. Rosenthal
Sign Name:------------------------------------
Address:______________________________________
----------------------------------------------
Social Security Number:_______________________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 50,000
------
PURCHASE PRICE PER SHARE: $ 4.75
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 18, 1997 50,000 June 18, 2002
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name)
----------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(INCENTIVE STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page
hereto by and between Life Medical Sciences, Inc., a Delaware corporation, with
a principal place of business at 379 Thornall Street, Edison, New Jersey
(together with its subsidiaries, if any, the "Company"), and the undersigned
(the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an incentive stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee an incentive stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable
on the dates and as to the installment amounts set forth on the signature page
to this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
a) Term.
(i) The Option shall expire as to each installment amount on the
date set forth next to each such amount on the signature page to
this Agreement (the "Expiration Date"), subject to earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the
Optionee ceases to perform services for the Company, the Option
shall terminate on the earlier of the last day of the third month
or ninety days after the date such Optionee ceases to perform
services for the Company, or on the date on which the Option
expires by its terms, whichever occurs first.
(iii) If the Optionee ceases to perform services for the Company
because of dismissal for cause or because the Optionee is in breach
of any employment agreement, such Option will terminate on the date
the Optionee ceases to perform services for the Company.
(iv) If the Optionee ceases to perform services for the Company
because the Optionee has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), such Option shall
terminate on the last day of the twelfth month from the date such
Optionee ceases to perform services for the Company, or on the date
on which the Option expires by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted
to such Optionee shall terminate on the last day of the twelfth
month from the date of death, or on the date on which the Option
expires by its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only to
the extent that the right to purchase Shares under such Option has
accrued and is in effect on the date such Optionee ceases to
perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full number of Shares covered by such Option.
-2-
<PAGE>
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the
Optionee was entitled to do so at the date of his or her death, by
the estate of such Optionee, or by any person or persons who
acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued
and is in effect, the Option may be exercised in full or in part by
giving written notice to the Company stating the number of Shares as
to which the Option is being exercised and accompanied by payment in
full for such Shares. No partial exercise may be made for less than
one hundred (100) full Shares of Common Stock. Payment shall be made
in accordance with the terms of the Plan. Upon such exercise, delivery
of a certificate for paid-up, non-assessable Shares shall be made at
the principal office of the Company to the person exercising the
Option, not less than thirty (30) and not more than ninety (90) days
from the date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its Common Stock
as will be sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee otherwise than by will or the laws or
descent and distribution or pursuant to a domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.
-3-
<PAGE>
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or this Option shall be construed or
deemed by any person under any circumstances to bind the Company to continue the
employment of the Optionee for the period within which this Option may be
exercised. However, during the period of the Optionee's employment, the Optionee
shall render diligently and faithfully the services which are assigned to the
Optionee from time to time by the Board of Directors or by the executive
officers of the Company and shall at no time take any action which directly or
indirectly would be inconsistent with the best interests of the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
June, 1997.
LIFE MEDICAL SCIENCES, INC.
BY:________________________________
Title:
OPTIONEE:
PRINT NAME: Donald W. Fallon
SIGNATURE:_________________________
ADDRESS:___________________________
___________________________________
SOCIAL SECURITY NUMBER:____________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 7,500
PURCHASE PRICE PER SHARE: $4.00
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
------------ ----------------- ---------------
June 17, 1998 7,500 June 17, 2003
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant
to the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such holder was
acquiring the Shares for his own account and for investment, with no intention
of transfer or disposition of the same in violation of the registration
requirements of that Act. These securities may not be sold, pledged, or
transferred in the absence of an effective registration statement under such
Act, or an opinion of counsel, which opinion is reasonably satisfactory to
counsel to the Company, to the effect that registration is not required under
such Act."
I further agree that the Company may place a stop transfer order with its
transfer agent,
-6-
<PAGE>
prohibiting the transfer of the Shares, so long as the legend remains on the
certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
---------------------------------------
(Signature)
---------------------------------------
(Print Name)
---------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
-1-
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date set
forth next to each such amount on the signature page to this Agreement (the
"Expiration Date"), subject to earlier termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall terminate on
the earlier of the last day of the third month or ninety days after the date
such Optionee ceases to perform services for the Company, or on the date on
which the Option expires by its terms, whichever occurs first.
(iii) If such termination to perform services is because of dismissal for
cause or because the Optionee is in breach of any employment agreement, such
Option will terminate on the date the Optionee ceases to perform services
for the Company.
(iv) If such termination to perform services is because the Optionee has
become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the last day of the twelfth month from
the date such Optionee ceases to perform services for the Company, or on the
date on which the Option expires by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted to such
Optionee shall terminate on the last day of the twelfth month from the date
of death, or on the date on which the Option expires by its terms, whichever
occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform services
for the Company, the Option shall be exercisable only to the extent that the
right to purchase Shares under such Option has accrued and is in effect on
the date such Optionee ceases to perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company because he
or she has become permanently disabled (within the
-2-
<PAGE>
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee was
entitled to do so at the date of his or her death, by the estate of such
Optionee, or by any person or persons who acquired the right to exercise
such Option by bequest or inheritance or by reason of the death of such
Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares as to which the Option
is being exercised and accompanied by payment in full for such Shares. No
partial exercise may be made for less than one hundred (100) full Shares of
Common Stock. Payment shall be made in accordance with the terms of the
Plan. Upon such exercise, delivery of a certificate for paid-up, non-
assessable Shares shall be made at the principal office of the Company to
the person exercising the Option, not less than thirty (30) and not more
than ninety (90) days from the date of receipt of the notice by the
Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
-3-
<PAGE>
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
June, 1997.
LIFE MEDICAL SCIENCES, INC.
By:--------------------------------------------
Title:
OPTIONEE :
Print Name: Donald W. Fallon
Sign Name:-------------------------------------
Address:---------------------------------------
-----------------------------------------------
Social Security Number:------------------------
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 12,500
PURCHASE PRICE PER SHARE: $ 4.00
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 17, 1997 10,000 June 17, 2002
June 17, 1998 2,500 June 17, 2003
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
----------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name)
----------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
-1-
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date set
forth next to each such amount on the signature page to this Agreement (the
"Expiration Date"), subject to earlier termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall terminate on
the earlier of the last day of the third month or ninety days after the date
such Optionee ceases to perform services for the Company, or on the date on
which the Option expires by its terms, whichever occurs first.
(iii) If such termination to perform services is because of dismissal for
cause or because the Optionee is in breach of any employment agreement, such
Option will terminate on the date the Optionee ceases to perform services
for the Company.
(iv) If such termination to perform services is because the Optionee has
become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the last day of the twelfth month from
the date such Optionee ceases to perform services for the Company, or on the
date on which the Option expires by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted to such
Optionee shall terminate on the last day of the twelfth month from the date
of death, or on the date on which the Option expires by its terms, whichever
occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform services
for the Company, the Option shall be exercisable only to the extent that the
right to purchase Shares under such Option has accrued and is in effect on
the date such Optionee ceases to perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company because he
or she has become permanently disabled (within the
-2-
<PAGE>
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee was
entitled to do so at the date of his or her death, by the estate of such
Optionee, or by any person or persons who acquired the right to exercise
such Option by bequest or inheritance or by reason of the death of such
Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares as to which
the Option is being exercised and accompanied by payment in full for such
Shares. No partial exercise may be made for less than one hundred (100)
full Shares of Common Stock. Payment shall be made in accordance with the
terms of the Plan. Upon such exercise, delivery of a certificate for
paid-up, non-assessable Shares shall be made at the principal office of
the Company to the person exercising the Option, not less than thirty
(30) and not more than ninety (90) days from the date of receipt of the
notice by the Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
-3-
<PAGE>
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be
made in accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's
who are employees of the Company. Nothing contained in the Plan or this Option
shall be construed or deemed by any person under any circumstances to bind the
Company to continue the employment of the Optionee for the period within which
this Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to
any Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
June, 1997.
LIFE MEDICAL SCIENCES, INC.
By:--------------------------------------------
Title:
OPTIONEE :
Print Name: Robert P. Hickey
Sign Name:-------------------------------------
Address:_______________________________________
-----------------------------------------------
Social Security Number:________________________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 50,000
PURCHASE PRICE PER SHARE: $ 4.00
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 17, 1997 25,000 June 17, 2002
June 17, 1998 25,000 June 17, 2003
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
----------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(INCENTIVE STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page
hereto by and between Life Medical Sciences, Inc., a Delaware corporation, with
a principal place of business at 379 Thornall Street, Edison, New Jersey
(together with its subsidiaries, if any, the "Company"), and the undersigned
(the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an incentive stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee an incentive stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable
on the dates and as to the installment amounts set forth on the signature page
to this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the
date set forth next to each such amount on the signature page to
this Agreement (the "Expiration Date"), subject to earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the
Optionee ceases to perform services for the Company, the Option
shall terminate on the earlier of the last day of the third month
or ninety days after the date such Optionee ceases to perform
services for the Company, or on the date on which the Option
expires by its terms, whichever occurs first.
(iii) If the Optionee ceases to perform services for the Company
because of dismissal for cause or because the Optionee is in breach
of any employment agreement, such Option will terminate on the date
the Optionee ceases to perform services for the Company.
(iv) If the Optionee ceases to perform services for the Company
because the Optionee has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), such Option shall
terminate on the last day of the twelfth month from the date such
Optionee ceases to perform services for the Company, or on the date
on which the Option expires by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted
to such Optionee shall terminate on the last day of the twelfth
month from the date of death, or on the date on which the Option
expires by its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only to
the extent that the right to purchase Shares under such Option has
accrued and is in effect on the date such Optionee ceases to
perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full number of Shares covered by such Option.
-2-
<PAGE>
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the
Optionee was entitled to do so at the date of his or her death, by
the estate of such Optionee, or by any person or persons who
acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and
is in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares as to which
the Option is being exercised and accompanied by payment in full for
such Shares. No partial exercise may be made for less than one hundred
(100) full Shares of Common Stock. Payment shall be made in accordance
with the terms of the Plan. Upon such exercise, delivery of a
certificate for paid-up, non-assessable Shares shall be made at the
principal office of the Company to the person exercising the Option,
not less than thirty (30) and not more than ninety (90) days from the
date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its Common Stock as
will be sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee otherwise than by will or the laws or
descent and distribution or pursuant to a domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.
-3-
<PAGE>
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or this Option shall be construed or
deemed by any person under any circumstances to bind the Company to continue the
employment of the Optionee for the period within which this Option may be
exercised. However, during the period of the Optionee's employment, the Optionee
shall render diligently and faithfully the services which are assigned to the
Optionee from time to time by the Board of Directors or by the executive
officers of the Company and shall at no time take any action which directly or
indirectly would be inconsistent with the best interests of the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
June, 1997.
LIFE MEDICAL SCIENCES, INC.
BY:________________________________
Title:
OPTIONEE:
PRINT NAME: Eli Pines
SIGNATURE:_________________________
ADDRESS:___________________________
___________________________________
SOCIAL SECURITY NUMBER:____________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 15,000
PURCHASE PRICE PER SHARE: $4.00
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
------------ ----------------- ---------------
June 17, 1998 15,000 June 17,2003
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant
to the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such holder was
acquiring the Shares for his own account and for investment, with no intention
of transfer or disposition of the same in violation of the registration
requirements of that Act. These securities may not be sold, pledged, or
transferred in the absence of an effective registration statement under such
Act, or an opinion of counsel, which opinion is reasonably satisfactory to
counsel to the Company, to the effect that registration is not required under
such Act."
I further agree that the Company may place a stop transfer order with its
transfer agent,
-6-
<PAGE>
prohibiting the transfer of the Shares, so long as the legend remains on the
certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
-----------------------------------------
(Signature)
-----------------------------------------
(Print Name)
-----------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
-1-
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date set
forth next to each such amount on the signature page to this Agreement
(the "Expiration Date"), subject to earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall terminate on
the earlier of the last day of the third month or ninety days after the
date such Optionee ceases to perform services for the Company, or on the
date on which the Option expires by its terms, whichever occurs first.
(iii) If such termination to perform services is because of dismissal for
cause or because the Optionee is in breach of any employment agreement,
such Option will terminate on the date the Optionee ceases to perform
services for the Company.
(iv) If such termination to perform services is because the Optionee has
become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the last day of the twelfth month
from the date such Optionee ceases to perform services for the Company, or
on the date on which the Option expires by its terms, whichever occurs
first.
(v) In the event of the death of the Optionee, the Option granted to such
Optionee shall terminate on the last day of the twelfth month from the
date of death, or on the date on which the Option expires by its terms,
whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform services
for the Company, the Option shall be exercisable only to the extent that
the right to purchase Shares under such Option has accrued and is in
effect on the date such Optionee ceases to perform services for the
Company.
(ii) If the Optionee ceases to perform services for the Company because he
or she has become permanently disabled (within the
-2-
<PAGE>
meaning of Section 22(e)(3) of the Code), the Option shall be exercisable
to the full number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee was
entitled to do so at the date of his or her death, by the estate of such
Optionee, or by any person or persons who acquired the right to exercise
such Option by bequest or inheritance or by reason of the death of such
Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares as to which
the Option is being exercised and accompanied by payment in full for
such Shares. No partial exercise may be made for less than one hundred
(100) full Shares of Common Stock. Payment shall be made in accordance
with the terms of the Plan. Upon such exercise, delivery of a
certificate for paid-up, non-assessable Shares shall be made at the
principal office of the Company to the person exercising the Option,
not less than thirty (30) and not more than ninety (90) days from the
date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will
be sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee otherwise than by will or the laws or
descent and distribution or pursuant to a domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
-3-
<PAGE>
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be
made in accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to
Optionee's who are employees of the Company. Nothing contained in the Plan or
this Option shall be construed or deemed by any person under any circumstances
to bind the Company to continue the employment of the Optionee for the period
within which this Option may be exercised. However, during the period of the
Optionee's employment, the Optionee shall render diligently and faithfully the
services which are assigned to the Optionee from time to time by the Board of
Directors or by the executive officers of the Company and shall at no time take
any action which directly or indirectly would be inconsistent with the best
interests of the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect
to any Shares which may be purchased by exercise of this Option unless and until
a certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option,
the Company shall have the right to require the Optionee to remit to the Company
an amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed, and
the Optionee has hereunto set his or her hand, all as of the 17th day of June,
1997 .
LIFE MEDICAL SCIENCES, INC.
By:-------------------------------------------
Title:
OPTIONEE :
Print Name: Eli Pines, Ph.D.
Sign Name:------------------------------------
Address:--------------------------------------
----------------------------------------------
Social Security Number:_______________________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 15,000
PURCHASE PRICE PER SHARE: $ 4.00
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ---------------
June 17, 1997 15,000 June 17, 2002
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
-8-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(INCENTIVE STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page
hereto by and between Life Medical Sciences, Inc., a Delaware corporation, with
a principal place of business at 214 Carnegie Center in Princeton, New Jersey
(together with its subsidiaries, if any, the "Company"), and the undersigned
(the "Optionee").
WHEREAS, the Company desires to grant to the Optionee an incentive stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee an incentive stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable
on the dates and as to the installment amounts set forth on the signature page
to this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the
date set forth next to each such amount on the signature page to
this Agreement (the "Expiration Date"), subject to earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 4, if the
Optionee ceases to perform services for the Company, the Option
shall terminate on the earlier of the last day of the third month
or ninety days after the date such Optionee ceases to perform
services for the Company, or on the date on which the Option
expires by its terms, whichever occurs first.
(iii) If the Optionee ceases to perform services for the Company
because of dismissal for cause or because the Optionee is in
breach of any employment agreement, such Option will terminate on
the date the Optionee ceases to perform services for the Company.
(iv) If the Optionee ceases to perform services for the Company
because the Optionee has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), such Option shall
terminate on the last day of the twelfth month from the date such
Optionee ceases to perform services for the Company, or on the
date on which the Option expires by its terms, whichever occurs
first.
(v) In the event of the death of the Optionee, the Option granted
to such Optionee shall terminate on the last day of the twelfth
month from the date of death, or on the date on which the Option
expires by its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only to
the extent that the right to purchase Shares under such Option has
accrued and is in effect on the date such Optionee ceases to
perform services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full number of Shares covered by such Option.
-2-
<PAGE>
(iii) In the event of the death of the Optionee, the Option may
be exercised with respect to the full number of Shares covered
thereby whether or not under the provisions of Section 3 hereof
the Optionee was entitled to do so at the date of his or her
death, by the estate of such Optionee, or by any person or
persons who acquired the right to exercise such Option by bequest
or inheritance or by reason of the death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and
is in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares as to which
the Option is being exercised and accompanied by payment in full for
such Shares. No partial exercise may be made for less than one hundred
(100) full Shares of Common Stock. Payment shall be made in accordance
with the terms of the Plan. Upon such exercise, delivery of a
certificate for paid-up, non-assessable Shares shall be made at the
principal office of the Company to the person exercising the Option,
not less than thirty (30) and not more than ninety (90) days from the
date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its Common Stock as
will be sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee otherwise than by will or the laws or
descent and distribution or pursuant to a domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and
-3-
<PAGE>
the Company shall place an "investment legend", so-called, as described in
Exhibit 1, upon any certificate for the Shares issued by reason of such
exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or this Option shall be construed or
deemed by any person under any circumstances to bind the Company to continue the
employment of the Optionee for the period within which this Option may be
exercised. However, during the period of the Optionee's employment, the Optionee
shall render diligently and faithfully the services which are assigned to the
Optionee from time to time by the Board of Directors or by the executive
officers of the Company and shall at no time take any action which directly or
indirectly would be inconsistent with the best interests of the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and
-4-
<PAGE>
the provisions of the Plan, the inconsistent provision(s) of this Agreement
shall be superseded by the Plan provision(s) to the extent necessary to
reconcile the inconsistency.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
-------
June, 1997.
- ----
LIFE MEDICAL SCIENCES, INC.
BY:________________________________
Title:
OPTIONEE:
PRINT NAME: Robert P. Hickey
SIGNATURE: _______________________
ADDRESS: 92 Gooseneck Point Rd.
---------------------------
Oceanport, NJ 07757
-----------------------------------
SOCIAL SECURITY NUMBER: ###-##-####
-------------------
OPTION INFORMATION
------------------
Total Number of Shares Underlying Option: 125,000
---------------
Purchase Price Per Share: $4.00
-----------------------------
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- --------------------- ---------------- ---------------
5/29/96 25,000 5/29/01
5/29/97 25,000 5/29/02
5/29/98 25,000 5/29/03
5/29/99 25,000 5/29/04
5/29/00 25,000 5/29/05
NOTE: This option REPLACES the Option granted May 29, 1996 with identical terms
except for the Purchase Price Per Share.
-6-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant
to the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such holder was
acquiring the Shares for his own account and for investment, with no intention
of transfer or disposition of the same in violation of the registration
requirements of that Act. These securities may not be sold, pledged, or
transferred in the absence of an effective registration statement under such
Act, or an opinion of counsel, which opinion is reasonably satisfactory to
counsel to the Company, to the effect that registration is not required under
such Act."
-7-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-8-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
--------------------------------------
(Signature)
--------------------------------------
(Print Name)
--------------------------------------
-9-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 214 Carnegie Center in Princeton, New Jersey
(together with its subsidiaries, if any, the "Company"), and the undersigned
(the "Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date
set forth next to each such amount on the signature page to this
Agreement (the "Expiration Date"), subject to earlier termination as
herein provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall terminate
on the earlier of the last day of the third month or ninety days after
the date such Optionee ceases to perform services for the Company, or
on the date on which the Option expires by its terms, whichever occurs
first.
(iii) If such termination to perform services is because of dismissal
for cause or because the Optionee is in breach of any employment
agreement, such Option will terminate on the date the Optionee ceases
to perform services for the Company.
(iv) If such termination to perform services is because the Optionee
has become permanently disabled (within the meaning of Section
22(e)(3) of the Code), such Option shall terminate on the last day of
the twelfth month from the date such Optionee ceases to perform
services for the Company, or on the date on which the Option expires
by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted to
such Optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the Option expires by
its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only to the
extent that the right to purchase Shares under such Option has accrued
and is in effect on the date such Optionee ceases to perform services
for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the meaning
of Section 22(e)(3) of the Code), the Option shall be exercisable to
the full number of Shares covered by such Option.
-2-
<PAGE>
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee
was entitled to do so at the date of his or her death, by the estate
of such Optionee, or by any person or persons who acquired the right
to exercise such Option by bequest or inheritance or by reason of the
death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares as to which the Option
is being exercised and accompanied by payment in full for such Shares. No
partial exercise may be made for less than one hundred (100) full Shares of
Common Stock. Payment shall be made in accordance with the terms of the
Plan. Upon such exercise, delivery of a certificate for paid-up, non-
assessable Shares shall be made at the principal office of the Company to
the person exercising the Option, not less than thirty (30) and not more
than ninety (90) days from the date of receipt of the notice by the
Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise of
the Option shall not be effectively registered under the Securities Act of 1933
(" 1933 Act"), upon any date on which the Option is exercised in whole or in
part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and
-3-
<PAGE>
the Company shall place an "investment legend", so-called, as described in
Exhibit 1, upon any certificate for the Shares issued by reason of such
exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionees who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
----
June, 1997.
- ----
LIFE MEDICAL SCIENCES, INC.
By:-------------------------------------------
Title:
OPTIONEE
Print Name: Robert P. Hickey
----------------------------------
Sign Name:------------------------------------
Address: 92 Gooseneck Point Road
------------------------------------
Oceanport, NJ 07757
------------------------------------
Social Security Number: ###-##-####
----------------------
OPTION INFORMATION
------------------
Total Number of Shares Underlying Option: 125,000
-------------------
Purchase Price Per Share: $4.00
----------------
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- ------------ ---------------- ----------------
5/29/96 25,000 5/29/01
5/29/97 25,000 5/29/02
5/29/98 25,000 5/29/03
5/29/99 25,000 5/29/04
5/29/00 25,000 5/29/05
NOTE: This Option REPLACES the identical Option granted May 29, 1996 except for
the Purchase Price Per Share.
-6-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-7-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-8-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
-----------------------------------------------
(Signature)
-----------------------------------------------
(Print Name)
-----------------------------------------------
-9-
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STOCK OPTION AGREEMENT
UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
(NON-QUALIFIED STOCK OPTION)
AGREEMENT entered into as of the date set forth on the signature page hereto
by and between Life Medical Sciences, Inc., a Delaware corporation, with a
principal place of business at 379 Thornall Street, Edison, New Jersey (together
with its subsidiaries, if any, the "Company"), and the undersigned (the
"Optionee").
WHEREAS, the Company desires to grant to the Optionee a non-qualified stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and
WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. Grant of Option.
---------------
The Company hereby grants to the Optionee a non-qualified stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth. The Option shall NOT be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.
3. Time of Vesting and Exercise of Option.
--------------------------------------
Subject to Section 4 hereof, the Option shall vest and become exercisable on
the dates and as to the installment amounts set forth on the signature page to
this Agreement. To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
-1-
<PAGE>
4. Term; Extent of Exercisability.
------------------------------
(a) Term.
(i) The Option shall expire as to each installment amount on the date
set forth next to each such amount on the signature page to this
Agreement (the "Expiration Date"), subject to earlier termination as
herein provided.
(ii) Except as otherwise provided in this Section 4, if the Optionee
ceases to perform services for the Company, the Option shall
terminate on the earlier of the last day of the third month or ninety
days after the date such Optionee ceases to perform services for the
Company, or on the date on which the Option expires by its terms,
whichever occurs first.
(iii) If such termination to perform services is because of dismissal
for cause or because the Optionee is in breach of any employment
agreement, such Option will terminate on the date the Optionee ceases
to perform services for the Company.
(iv) If such termination to perform services is because the Optionee
has become permanently disabled (within the meaning of Section
22(e)(3) of the Code), such Option shall terminate on the last day of
the twelfth month from the date such Optionee ceases to perform
services for the Company, or on the date on which the Option expires
by its terms, whichever occurs first.
(v) In the event of the death of the Optionee, the Option granted to
such Optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the Option expires by
its terms, whichever occurs first.
(b) Extent of Exercisability.
------------------------
(i) Except as provided below, if the Optionee ceases to perform
services for the Company, the Option shall be exercisable only to the
extent that the right to purchase Shares under such Option has
accrued and is in effect on the date such Optionee ceases to perform
services for the Company.
(ii) If the Optionee ceases to perform services for the Company
because he or she has become permanently disabled (within the
-2-
<PAGE>
meaning of Section 22(e)(3) of the Code), the Option shall be
exercisable to the full number of Shares covered by such Option.
(iii) In the event of the death of the Optionee, the Option may be
exercised with respect to the full number of Shares covered thereby
whether or not under the provisions of Section 3 hereof the Optionee
was entitled to do so at the date of his or her death, by the estate
of such Optionee, or by any person or persons who acquired the right
to exercise such Option by bequest or inheritance or by reason of the
death of such Optionee.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and is
in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares as to which the Option
is being exercised and accompanied by payment in full for such Shares. No
partial exercise may be made for less than one hundred (100) full Shares of
Common Stock. Payment shall be made in accordance with the terms of the
Plan. Upon such exercise, delivery of a certificate for paid-up, non-
assessable Shares shall be made at the principal office of the Company to
the person exercising the Option, not less than thirty (30) and not more
than ninety (90) days from the date of receipt of the notice by the
Company.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of the Option.
6. Non-Transferability.
-------------------
The right of the Optionee to exercise the Option shall not be assignable
or transferable by the Optionee otherwise than by will or the laws or descent
and distribution or pursuant to a domestic relations order as defined in the
Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.
7. Representation Letter and Investment Legend.
-------------------------------------------
In the event that for any reason the Shares to be issued upon exercise
-3-
<PAGE>
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.
8. Adjustments on Changes in Capitalization.
----------------------------------------
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.
9. No Special Employment Rights.
----------------------------
The provisions of this Section 9 are applicable only to Optionee's who
are employees of the Company. Nothing contained in the Plan or this Option shall
be construed or deemed by any person under any circumstances to bind the Company
to continue the employment of the Optionee for the period within which this
Option may be exercised. However, during the period of the Optionee's
employment, the Optionee shall render diligently and faithfully the services
which are assigned to the Optionee from time to time by the Board of Directors
or by the executive officers of the Company and shall at no time take any action
which directly or indirectly would be inconsistent with the best interests of
the Company.
10. Rights as a Stockholder.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
11. Withholding Taxes.
-----------------
Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.
-4-
<PAGE>
12. Plan Provisions Control.
-----------------------
In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
June, 1997.
LIFE MEDICAL SCIENCES, INC.
By:----------------------------------------
Title:
OPTIONEE :
Print Name: Eli Pines, Ph.D.
Sign Name:---------------------------------
Address:-----------------------------------
-------------------------------------------
Social Security Number:____________________
OPTION INFORMATION
------------------
TOTAL NUMBER OF SHARES UNDERLYING OPTION: 50,000
PURCHASE PRICE PER SHARE: $ 4.00
VESTING & EXPIRATION SCHEDULE
-----------------------------
VESTING DATE NUMBER OF SHARES EXPIRATION DATE
- -----------------------------------------------------------------------------
December 29, 1995 25,000 December 29, 2000
If completed Repel Pilot Five years from date of
study by Dec. 31, 1997. 25,000 vesting.
NOTE: This Option REPLACES the identical Option granted on December 29, 1995
except for the Purchase Price Per Share.
-5-
<PAGE>
EXHIBIT 1
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant to
the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.
3. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such
holder was acquiring the Shares for his own account and for investment,
with no intention of transfer or disposition of the same in violation of
the registration requirements of that Act. These securities may not be
sold, pledged, or transferred in the absence of an effective registration
statement under such Act, or an opinion of counsel, which opinion is
reasonably satisfactory to counsel to the Company, to the effect that
registration is not required under such Act."
-6-
<PAGE>
I further agree that the Company may place a stop transfer order with its
transfer agent, prohibiting the transfer of the Shares, so long as the legend
remains on the certificates representing the Shares.
Very truly yours,
Dated: _____________
-7-
<PAGE>
EXHIBIT 2
TO STOCK OPTION AGREEMENT
-------------------------
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.
OPTIONEE:
-----------------------------------------
(Signature)
-----------------------------------------
(Print Name)
-----------------------------------------
-8-
<PAGE>
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Registration Nos. 33-60580 and 333-13895) and Form S-3 (Registration
No. 333-19195) of our report dated February 12, 1998 on the financial statements
included in the 1997 annual report on Form 10-K of Life Medical Sciences, Inc.
Richard A. Eisner & Company, LLP.
New York, New York
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,733
<SECURITIES> 4,836
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,129
<PP&E> 172
<DEPRECIATION> 58
<TOTAL-ASSETS> 7,786
<CURRENT-LIABILITIES> 1,154
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 6,157
<TOTAL-LIABILITY-AND-EQUITY> 7,786
<SALES> 0
<TOTAL-REVENUES> 64
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (7,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,666)
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<CHANGES> 0
<NET-INCOME> (7,666)
<EPS-PRIMARY> (.97)
<EPS-DILUTED> (.97)
</TABLE>
